S.M.

Tax 1 Reviewer

A. Taxation : Its general concepts a. Taxation as a power

Taxation:

à It is the power by w/c an independent State, through its law-making body, raises and
accumulates revenue from its inhabitants to pay the necessary expenses of the government.
As a means, it is a way of collecting and apportioning the cost of government among those
who are privileged to enjoy its benefits and must bear its burdens.
à Taxation is a destructive power, which interferes with the personal and property rights of the
people and takes from them a portion of their property for the support of the government.
à It is a mode of raising revenue for public purposes.

Taxes

à Are enforced proportional contributions from persons and property, levied by the State by
virtue of its sovereignty for the support of the govt. and for all public needs.

Elements of taxation (ESP):

1.) It is an Enforced proportional contribution from persons and properties – taxes are
obligations created by law and their validity are not dependent upon the individual consent
of the persons taxed; proportional because taxes are based on one’s ability to pay;
2.) It is imposed by the State by virtue of its Sovereignty – power to tax is a legislative power;
and
3.) It is levied for the support of the govt. and for all Public needs.

Two (2) concepts of Taxation:TP

a.) Power to Tax; and

b.) The act or process by w/c the taxing power is exercised.

1. Nature of the power of taxation Inherent Power

a.) Taxation as an Inherent Attribute of Sovereignty
b.) Taxation is Legislative in Character.

Two (2) nature of the taxing power (IL):

a.) Taxation as an Inherent Attribute of Sovereignty

à The power of taxation is an incident of sovereignty as it is inherent in the state, belonging as

a matter of right to every independent government. It does not need constitutional
conferment.
à Constitutional provisions do not give rise to the power to tax but merely impose limitations
on what would otherwise be an invincible power.
à It is considered inherent in a sovereign State because it is a necessary attribute of sovereignty,
hence, without this power, no sovereign State can exist nor endure. (Necessity Theory)
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à No sovereign State can continue to exist without the means to pay its expenses and that for
those means, it has the right to compel all citizens and property within its limits to contribute,
hence, the emergence of the power to tax.

b.) Taxation is Legislative in Character.

à The power to tax is inherent in the State, and the state is free to select the object of taxation,
such as being exclusively vested in the legislature, except where the constitution provides
otherwise (Art. 6, Sec. 28 (2); Art. 10, Sec 5).
à This is a power that is purely legislative which means that in the legislature primarily lies
the discretion to determine the nature (kind, object (purpose), extent (rate), coverage
(subjects) and situs (place of taxation). nes RECS
-

à It has the authority to prescribe certain tax at a specific rate for a particular public purpose
.

on persons or things within its jurisdictions, hence, the legislature has the power to define
what tax shall be imposed, against whom (or what) it shall be imposed and where it shall be
imposed. WWW
although the
general purpose
Extent of the Taxing Power: Taxation is said to be (CUPS): of tax is to raise
revenue, a tax
PBA Ppp -

statute must not

a.) Comprehensive – it covers persons, businesses, activities, professions, rights and privileges. be declared void
b.) Unlimited – a tax does not cease to be valid merely because it regulates, discourages or simply because it
even definitely deters the activities taxed. The power to impose taxes is one so unlimited in -> also regulates,
discourages, or
force and so searching in extent that the courts scarcely venture to declare that it is subject even definitely
to any restrictions whatever, EXCEPT such as rest in the discretion of the authority which deters the
activities taxed.
exercises it (Tio v. Videogram Regulatory Board)
c.) Plenary – it is complete. Under the NIRC, the BIR may avail of certain remedies to ensure -> it does not
only provide
the collection of taxes. for amount of
d.) Supreme – although referred to as the strongest of the powers of the govt, cannot be tax to be
interpreted to mean that it is superior to the other inherent powers of the govt. It is supreme imposed but
also who will
insofar as the selection of the subject of taxation is concerned. collect the
same, and
what can be
TAXATION POLICE POWER EMINENT DOMAIN the remedies
Authority who Government or public in case of
Government or its political Government or its challenging
exercises the service companies and tax
subdivision political subdivision
power public utilities assessments
To raise revenue in support of Promotion of general To facilitate the taking of
Purpose the Government. Regulation is welfare through private property for public
merely incidental regulations purpose
On an individual as the
Persons Upon the community or class of Upon the community
owner of a particular
affected individuals or class of individuals
property
Limited to the cost of
Amount of No imposition, the owner
No ceiling except inherent regulation, issuance
monetary is paid the fair market
limitations of license or
imposition value of his property
surveillance
Maintenance of The person receives the
Benefits Protection of a secured healthy economic fair market value of the
received organized society, benefits standard of society/no property taken from
direct benefit him/direct benefit results
S.M.O

received from government/no

direct benefit

Tax laws generally do not

Non- impair contracts, unless the
Contracts may be Contracts may be
impairment of government is party to contract
impaired impaired
contracts granting exemption for a
consideration
Must comply with the
Must not be contrary to inherent tests on “lawful
Must be for public
and constitutional limitations subjects” and “lawful
Test of validity purpose and with payment
means”
of just compensation
Lawful Subject - must be for the public purpose or general welfare
Lawful means- must be reasonably necessary and must not be unduly oppressive

Similarities among taxation, police power and eminent domain

INIICE

1. They are inherent powers of the State.

2. All are necessary attributes of the sovereign.
3. They exist independently of the Constitution.
4. They constitute the three methods by which the State interferes with private rights and
property.
5. They presuppose equivalent compensation.
6. The legislature can exercise all three powers.

Power to destroy vis-à-vis Power to Build

Power to tax includes power to destroy if it is used validly as an implement of police power
in discouraging and ultimately prohibiting certain things or enterprises inimical to the public
welfare. Therefore, it should be exercised with caution to minimize injury to the proprietary right
of a taxpayer. Hence, it must be exercised fairly, equally and uniformly, lest the tax collector kill
the ‘hen that lays the golden egg. l->avoid
Tps
What does this mean: “the power to tax is not the power to destroy, so long as the Supreme
Court sits”?
A: In the case of Sison v. Ancheta, the Supreme Court held that, “While taxation is said to be the
power to destroy, it is by no means unlimited. If so great an abuse is manifested as to destroy natural
and fundamental rights which no free government could consistently violate, it is the duty of the
judiciary to hold such an act unconstitutional. The Constitution as the fundamental law of the land
overrides any legislative or executive act that runs counter to it. In any case, therefore, where it can
be demonstrated that the challenged statutory provision fails to abide by its command, then the court
must so declare and adjudge it null.”

Sison v Ancheta G.R. No. L-59431. July 25, 1984.

C. J. Fernando
Declaratory Relief

Facts:
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Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It amended
Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens
or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and
other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e) dividends and share of individual
partner in the net profits of taxable partnership, (f) adjusted gross income.
CNRBDG
Petitioner as taxpayer alleged that "he would be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which
are imposed upon fixed income or salaried individual taxpayers." He characterizes the above section
as arbitrary amounting to class legislation, oppressive and capricious in character. For petitioner, COC
therefore, there is a transgression of both the equal protection and due process clauses of the
Constitution as well as of the rule requiring uniformity in taxation. The OSG prayed for dismissal of
the petition due to lack of merit.

Issue: Whether the imposition of a higher tax rate on taxable net income derived from business or
profession than on compensation is constitutionally infirm.

(WON there is a transgression of both the equal protection and due process clauses of the
Constitution as well as of the rule requiring uniformity in taxation)

Held: No. Petition dismissed

Ratio:
The need for more revenues is rationalized by the government's role to fill the gap not done
by public enterprise in order to meet the needs of the times. It is better equipped to administer for the
public welfare. The power to tax, an inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the bulk of public funds. The power to tax is
an attribute of sovereignty and the strongest power of the government. There are restrictions,
however, diversely affecting as it does property rights, both the due process and equal protection
clauses may properly be invoked, as petitioner does, to invalidate in appropriate cases a revenue
measure. If it were otherwise, taxation would be a destructive power.

The petitioner failed to prove that the statute ran counter to the Constitution. He used
arbitrariness as basis without a factual foundation. This is merely to adhere to the authoritative
doctrine that where the due process and equal protection clauses are invoked, considering that they
are not fixed rules but rather broad standards, there is a need for proof of such persuasive character
as would lead to such a conclusion. It is undoubted that the due process clause may be invoked where
a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is
where it can be shown to amount to the confiscation of property. That would be a clear abuse of
power.

It has also been held that where the assailed tax measure is beyond the jurisdiction of the
state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable,
it is subject to attack on due process grounds. For equal protection, the applicable standard to
determine whether this was denied in the exercise of police power or eminent domain was the
presence of the purpose of hostility or unreasonable discrimination. It suffices then that the laws
operate equally and uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different, both in the privileges conferred and
the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that
equal protection and security shall be given to every person under circumstances, which if not
S.M.O

identical are analogous. If law be looks upon in terms of burden or charges, those that fall within a
class should be treated in the same fashion, whatever restrictions cast on some in the group equally
binding on the rest.

The equal protection clause is, of course, inspired by the noble concept of approximating the
ideal of the laws's benefits being available to all and the affairs of men being governed by that serene
and impartial uniformity, which is of the very essence of the idea of law. The equality at which the
'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the
equal protection of the laws,' and laws are not abstract propositions. They do not relate to abstract
units A, B and C, but are expressions of policy arising out of specific difficulties, addressed to the
attainment of specific ends by the use of specific remedies. The Constitution does not require things
which are different in fact or opinion to be treated in law as though they were the same. Lutz v
Araneta- it is inherent in the power to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that 'inequalities which result from a singling out of one particular class for
taxation, or exemption infringe no constitutional limitation.

Petitioner- kindred concept of uniformity- Court- Philippine Trust Company- The rule of uniformity
does not call for perfect uniformity or perfect equality, because this is hardly attainable Equality and
uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. There is quite a similarity then to the standard of equal
protection for all that is required is that the tax "applies equally to all persons, firms and corporations
placed in similar situation". There was a difference between a tax rate and a tax base. There is no
legal objection to a broader tax base or taxable income by eliminating all deductible items and at the
same time reducing the applicable tax rate. The discernible basis of classification is the susceptibility
of the income to the application of generalized rules removing all deductible items for all taxpayers
within the class and fixing a set of reduced tax rates to be applied to all of them. As there is practically
no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes
because they are in the same situation more or less.

Taxpayers who are recipients of compensation income are set apart as a class.

On the other hand, in the case of professionals in the practice of their calling and businessmen, there
is no uniformity in the costs or expenses necessary to produce their income. It would not be just then
to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all
alike the same tax rates on the basis of gross income. There was a lack of a factual foundation, the
forcer of doctrines on due process and equal protection, and he reasonableness of the distinction
between compensation and taxable net income of professionals and businessmen not being a dubious
classification.

Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue

G.R. 167330 (September 18, 2009)

Corona, J.:

Facts: On January 27, 2000, the respondent CIR sent petitioner assessment of deficiency taxes,
both Value-Added Tax (VAT) and documentary stamp tax (DST) in the total amount of
P224,702,641.18 for taxable years 1996 and 1997. Petitioner protested such assessment in a letter,
but the respondent did not act on the protest which led the petitioner to file a petition in the Court
S.M.O

of Tax Appeals (CTA) seeking the cancellation of said assessments. CTA partially granted the
petition wherein the petitioner is ordered to pay the deficiency VAT and set aside the DST
deficiency tax. Respondent appealed in Court of Appeals (CA) with regard to the cancellation of
DST assessment. CA granted the petition. The Court affirmed CA’s decision. Hence, petitioner
filed a motion for reconsideration.

Issue: Whether or not the petitioner is liable to pay the DST on its health care agreement pursuant
to Sec.185 of the National Internal Revenue Code of 1997

Held: Petition granted. Petitioner is not contemplated to be included in “or other branch insurance”
covered by Section 185 of NIRC because it is a Health Maintenance Organization (HMO) and not
an insurance company. HMOs primary purpose is rendering service to its member by lowering
prices and reducing the cost rather than the risk of medical health. On the other hand, insurance
businesses undertakes for a consideration to indemnify its clients against loss, damage or liability
arising from unknown or contingent event. The term “indemnify” therein presuppose that a liability
or claim has already been incurred. In HMOs, there is no indemnity precisely because the member
merely avails of medical services to be paid or already paid in advance at a pre-agreed price under
the agreements.

Moreover, HMOs play an important role in society as partners of the State in achieving its
constitutional mandate of providing citizens with affordable health services.

Also, the DST assessment of the petitioner for the years 1996 and 1997 became moot and academic
since it availed tax amnesty under RA 9480 on December 10, 2007. Thus, petitioner is entitled to
immunity from payment of taxes for taxable year 2005 and prior years.

2. Importance of taxation and the Lifeblood Doctrine

The lifeblood doctrine is essential because taxes are the lifeblood of the government and their prompt
and certain availability is an imperious need.” This means that, without taxes, the State can neither
exist nor endure. Thus, taxes should be collected without unnecessary hindrance.

Note: Govt. projects and infrastructures are made possible through the availability of funds provided
through taxation. Hence, the govt.’s ability to serve and protect depends largely upon taxes. (Taxes
are the sinews of the State-vectigalia nervi sunt publicae)
Ibm foundation q Strength
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1. Camp John Hay Development Corporation (CJHDC) vs. Central Board of Assessment
Appeals (CBAA)

G.R. No. 169234 October 2, 2013

Perez, J. Facts:

The City Assessor of Baguio City, respondent, notified petitioner Camp John Hay Development
Corporation about the issuance of 36 Owner’s Copy of Assessment of Real Property (ARP)
covering various buildings and 2 parcels of land which were owned and leased by the petitioner.
S.M.O

Petitioner questioned the assessments for lack of legal basis due to the City Assessor’s failure to
identify the specific properties and its corresponding values. Petitioner filed with Board of Tax
Assessments Appeals (BTAA) an appeal challenging the validity and propriety of the issuances of
City Assessor. They claimed that there was no legal basis for the issuance of the assessments
because it was allegedly exempted from paying taxes, national and local, pursuant to Bases
Conversion and Development Act.

In a resolution, BTAA enjoined petitioner to first comply with the Rules of Procedure before the
LBAA, particularly to the payment under protest of the subject property taxes before the hearing of
its appeal. Subsequently, Petitioner elevated the case before the Central Board of Assessment
Appeals (CBAA) which denied petitioner’s appeal and remanded the case to LBAA for further
proceedings.

Petitioner appealed to the CTA en banc however, CTA found that the petitioner has indeed failed to
comply with Section 252 of the LGC of 1991 hence it dismissed the petition and affirmed the
resolution of CBAA.

Hence, petitioner elevated its cause to the SC arguing that section 252 of LGC does not apply when
the person assessed is tax-exempt entity.

Issue:

Whether or not CTA en banc erred in dismissing for lack of merit and accordingly affirmed the
order of the CBAA to remand the case to the LBAA for further proceedings subject to a full and
up-to-date payment of realty taxes.

Ruling:

The petition is denied for lack of merit.

Section 252 of LGC of 1991 provides that “ xxx No protest shall be entertained unless the taxpayer
first pays the tax xxx”

Section 252 emphatically directs that the taxpayer questioning the assessment should first pay the
tax due before his protest can be entertained. Payment of the tax assessed under protest, is

an essential condition before a protest or an appeal questioning the correctness of an assessment of

real property tax may be entertained.

This restriction upon the power of the courts to impeach tax assessment without prior payment,
under protest, of the taxes assessed is consistent with the doctrine that taxes are lifeblood of the
nation and as such their collection cannot be curtailed by injunction or any like action; otherwise,
the state, or in this case the LGU, shall be crippled in dispensing the needed services to the people.

2. VERA v. FERNANDEZ
GR No. L-31364 March 30, 1979
89 SCRA 199

FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes
representing the estate's tax deficiencies in 1963 to 1964 in the intestate proceedings of Luis Tongoy.
S.M.O

The administrator opposed arguing that the claim was already barred by the statute of limitation,
Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that all claims for money
against the decedent, arising from contracts, express or implied, whether the same be due, not due,
or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and
judgment for money against the decedent, must be filed within the time limited in the notice;
otherwise they are barred forever.

ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the government for
unpaid taxes?

HELD: No. The reason for the more liberal treatment of claims for taxes against a decedent's estate
in the form of exception from the application of the statute of non-claims, is not hard to find. Taxes * Lifeblood
are the lifeblood of the Government and their prompt and certain availability are imperious need.
(CIR vs. Pineda, 21 SCRA 105). Upon taxation depends the Government ability to serve the people
for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government
officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to
the people, in the same manner as private persons may be made to suffer individually on account of
his own negligence, the presumption being that they take good care of their personal affairs. This
☒
should not hold true to government officials with respect to matters not of their own personal concern.
This is the philosophy behind the government's exception, as a general rule, from the operation of
the principle of estoppel.
3. CIR vs Algue Inc.
No. L-28896 Feb. 17, 1988
CRUZ, J.:

FACTS: Algue Inc. engaged in engineering, construction etc. was appointed as agent by Ph.
Sugar Estate Developmend Company to sell latter’s land, factories and oil manufacturing
process.Pursuant to that, 5 individuals were hired for the formation of the Vegetable Oil Investment
Corporation, inducing others to invest in it. By promoting, this corporation purchased the PSEDC
properties. Algue then received as agent commission of P125k and it was from this commission
that the P75k promotional fees were paid to the five individuals. There is no dispute that they
reported their respective income tax returns and paid tax.
Algue was assessed of P83k as delinquency income taxes. Upon inaction to the protest, Algue filed
a petition with CTA.
CTA: taxes were legitimately payed for actual services rendered.

ISSUE: W/N CIR correctly disallowed the P75k deduction claimed by algue as legitimate business
expenses.

HELD: No. The amount of promotional fees was not excessive. Findings of CTA is accord with
Sec. 30 and 70 of Tax Code. Algue has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors to venture in an
experimental enterprise.

It is true that taxes are the lifeblood of the Government hence every oersin who is able to must
contribute his share in the running of the government. The government for its part, is expected to
respond in the form of tangible and intangible benefits intended to improve the lives of the people
and enhance their moral and material values. Benefits Received Thirty
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This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it
is an arbitrary method of exaction by those in the seat of power.
It is a requirement that it be exercised reasonably and in accordance with the prescribed procedure.
S.M.O

4. CIR v CA & YMCA

GR No 124043, October 14, 1998

FACTS:
In 1980, YMCA earned an income of 676,829.80 from leasing out a portion of its premises to small
shop owners, like restaurants and canteen operators and 44,259 from parking fees collected from
non-members. On July 2, 1984, the CIR issued an assessment to YMCA for deficiency taxes which
included the income from lease of YMCA’s real property. YMCA formally protested the assessment
but the CIR denied the claims of YMCA. On appeal, the CTA ruled in favor of YMCA and excluded
income from lease to small shop owners and parking fees. However, the CA reversed the CTA but
affirmed the CTA upon motion for reconsideration.

ISSUE:
Whether the rental income of YMCA is taxable

RULING:
Yes. The exemption claimed by YMCA is expressly disallowed by the very wording of then Section
27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from
any of their properties, real or personal, be subject to the tax imposed by the same Code. While the
income received by the organizations enumerated in Section 26 of the NIRC is, as a rule, exempted

I
from the payment of tax in respect to income received by them as such, the exemption does not apply
to income derived from any of their properties, real or personal or from any of their activities
conducted for profit, regardless of the disposition made of such income.

Digest D not income tax on real properties #2

Facts:
The main question in this case is: “is the income derived from rentals of real property owned by
Young Men’s Christian Association of the Philippines (YMCA) – established as “a welfare,
educational and charitable non-profit corporation” – subject to income tax under the NIRC and the
Constitution? In 1980, YMCA earned an income of P676,829 from leasing out a portion of its
premises to small shop owners, like restaurants and canteen operators and P44k form parking fees.

Issue:
Whether or not the rental income of the YMCA taxable

Ruling:
Yes. The exemption claimed by the YMCA is expressly disallowed by the very wording of the last
paragraph of then Sec. 27 of the NIRC; court is duty-bound to abide strictly by its literal meaning
and to refrain from resorting to any convoluted attempt at construction. The said provision mandates
that the income of exempt organizations (such as YMCA) from any of their properties, real or
personal, be subject to the tax imposed by the same Code. Private respondent is exempt from the
payment of property tax, but nit income tax on rentals from its property.
S.M.O

[G.R. No. 120880. June 5, 1997]

5. FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE
COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA D. DE
GUZMAN, respondents.
MARCOS II vs. CA
273 SCRA 47
GR No. 120880, June 5, 1997
"The approval of the court sitting in probate is not a mandatory requirement in the collection of
estate taxes."
"In case of failure to file a return, the tax may be assessed at anytime within 10 years after the
omission."

FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant
CIR's petition to levy the properties of the late Pres. Marcos to cover the payment of his tax
delinquencies during the period of his exile in the US. The Marcos family was assessed by the BIR
after it failed to file estate tax returns.
The investigation disclosed that the Marcoses failed to file a written notice of the death of the
decedent, an estate tax returns [sic], as well as several income tax returns covering the years 1982
to 1986, - all in violation of the National Internal Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax
Return for the estate of the late president, the Income Tax Returns of the Spouses Marcos for the
years 1985 to 1986, and the Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos II for
the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-2-
89-91-002464 (against the estate of the late president Ferdinand Marcos in the amount of
P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no. FAC-1-85-91-002452 and
Deficiency income tax assessment no. FAC-1-86-91-002451 (against the Spouses Ferdinand and
Imelda Marcos in the amounts of P149,551.70 and P184,009,737.40 representing deficiency
income tax for the years 1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-
002460 to FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos II in the
amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing
his deficiency income taxes for the years 1982 to 1985).

However the assessment were not protested administratively by Mrs. Marcos and the heirs of the
late president so that they became final and unappealable after the period for filing of opposition
has prescribed. Marcos contends that the properties could not be levied to cover the tax dues
because they are still pending probate with the court, and settlement of tax deficiencies could not
be had, unless there is an order by the probate court or until the probate proceedings are terminated.
Petitioner also pointed out that applying Memorandum Circular No. 38-68, the BIR's Notices of
Levy on the Marcos properties were issued beyond the allowed period, and are therefore null and
void.

On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes
is paramount. Thus, the pendency of probate proceedings over the estate of the deceased does not
preclude the assessment and collection, through summary remedies, of estate taxes over the same.
According to the respondent, claims for payment of estate and income taxes due and assessed after
the death of the decedent need not be presented in the form of a claim against the estate. These can
and should be paid immediately. The probate court is not the government agency to decide whether
an estate is liable for payment of estate of income taxes. Well-settled is the rule that the probate
court is a court with special and limited jurisdiction.
S.M.O

ISSUE: Whether or not the Bureau of Internal Revenue has the authority to collect by the summary
remedy of levying upon, and sale of real properties of the decedent, estate tax deficiencies, without
the cognition and authority of the court sitting in probate over the supposed will of the deceased.

HELD:

The nature of the process of estate tax collection has been described as follows:

"Strictly speaking, the assessment of an inheritance tax does not directly involve
the administration of a decedent's estate, although it may be viewed as an incident
to the complete settlement of an estate, and, under some statutes, it is made the
duty of the probate court to make the amount of the inheritance tax a part of the
final decree of distribution of the estate. It is not against the property of decedent,
nor is it a claim against the estate as such, but it is against the interest or
property right which the heir, legatee, devisee, etc., has in the property
formerly held by decedent.

Further, under some statutes, it has been held that it is not a suit or controversy
between the parties, nor is it an adversary proceeding between the state and the
person who owes the tax on the inheritance. However, under other statutes it has
been held that the hearing and determination of the cash value of the assets and the
determination of the tax are adversary proceedings. The proceeding has been held
to be necessarily a proceeding in rem.[11] determine
Proceeding brought
to
the status of> %¥aihd dispose
-

the thing o-lprop.tintere.si

In the Philippine experience, the enforcement and collection of estate tax, is

executive in character, as the legislature has seen it fit to ascribe this task to
the Bureau of Internal Revenue.
Section 3 of the National Internal Revenue Code attests to this:

"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal Revenue
shall comprehend the assessment and collection of all national internal revenue taxes, fees, and
charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including
the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the
ordinary courts. Said Bureau shall also give effect to and administer the supervisory and police
power conferred to it by this Code or other laws."

It is discernible that the approval of the court, sitting in probate, or as a settlement

tribunal over the deceased is not a mandatory requirement in the collection of estate
taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the
levying and sale of the properties allegedly owned by the late President, on the ground that
it was required to seek first the probate court's sanction. There is nothing in the Tax Code,
and in the pertinent remedial laws that implies the necessity of the probate or estate Ratio
settlement court's approval of the state's claim for estate taxes, before the same can
be enforced and collected.
S.M.O

Under Section 87 of the NIRC, it is the probate or settlement court which is bidden not
to authorize the executor or judicial administrator of the decedent's estate to deliver any
distributive share to any party interested in the estate, unless it is shown a Certification
by the Commissioner of Internal Revenue that the estate taxes have been
paid. This provision disproves the petitioner's contention that it is the probate court which
approves the assessment and collection of the estate tax.

The deficiency income tax assessments and estate tax assessment are already final and
unappealable -and-the subsequent levy of real properties is a tax remedy resorted to by the
government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This
summary tax remedy is distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the pendency of any other tax
remedies instituted by the government.
The approval of the court, sitting in probate, or as a settlement tribunal over the deceased's estate
is not a mandatory requirement in the collection of estate taxes. On the contrary, under Section 87
of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or
judicial administrator of the decedent's estate to deliver any distributive share to any party
interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue
that the estate taxes have been paid. This provision disproves the petitioner's contention that it is
the probate court which approves the assessment and collection of the estate tax.
On the issue of prescription, the omission to file an estate tax return, and the subsequent failure to
contest or appeal the assessment made by the BIR is fatal to the petitioner's cause, as under Sec.223
of the NIRC, in case of failure to file a return, the tax may be assessed at anytime within 10 years
after the omission, and any tax so assessed may be collected by levy upon real property within 3
years (now 5 years) following the assessment of the tax. Since the estate tax assessment had
become final and unappealable by the petitioner's default as regards protesting the validity of the
said assessment, there is no reason why the BIR cannot continue with the collection of the said tax.

Other Ruling:
ISSUE: WON THE APPROVAL OF THE COURT MANDATORY FOR THE
COLLECTION OF TAXES

Ruling: No. The enforcement of tax laws and collection of taxes are of paramount importance
for the sustenance of government. Taxes are the lifeblood of the government and should be
collected without unnecessary hindrance. However, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting interest of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be
achieved.
(Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the
deficiency income tax assessments and estate tax assessments upon the estate and properties of his
late father despite the pendency of the probate proceedings of the will of the late President. On the
other hand, the BIR argued that the State’s authority to collect internal revenue taxes is paramount.)
Petitioner further argues that "the numerous pending court cases questioning the late
president's ownership or interests in several properties (both real and personal) make the total value
of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this
time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and
sale are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos.
0001-0034 and 0141, which were filed by the government to question the ownership and interests
of the late President in real and personal properties located within and outside the Philippines.
S.M.O

Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection
of estate taxes upon the decedent's estate were among those involved in the said cases pending in
the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at
issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect
the enforcement of tax assessments over the properties indubitably included in his estate.

3. Justifications for the exercise of the taxing power (Theories on Taxation):

a.) Benefits-protection/ Reciprocity Theory (Doctrine of Symbiotic
Theory) (Benefits Received Theory)
b.) Necessity Theory

a.) Benefits-protection/ Reciprocity Theory (Doctrine of Symbiotic Theory) (Benefits Received

Theory)

The doctrine of symbiotic relationship is a term culled from the ruling of the Supreme Court
in Commissioner of Internal Revenue v Algue, Inc., which stressed that: “Taxes are what we pay for
a civilized society. Without taxes, the government would be paralyzed for lack of the motive power
to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s hard-earned
income to the taxing authorities, every person who is able to must contribute his share in the burden
of running the government. The government, for its part, is expected to respond in the form of
tangible and intangible benefits intended to improve the lives of the people and enhance their material
and moral values.”

Note: taxes are paid for the enjoyment of organized society. Such enjoyment also extends to those
members of a State who do not pay taxes because they are not able to do so.

b.) Necessity Theory

N ANCIP
-
-

The necessity theory states that taxation is a power predicated upon necessity. It is a necessary burden
to preserve the State’s sovereignty and a means to give the citizenry an army to resist aggression, a
navy to defend its shores from invasion, a corps of civil servants to serve, public improvements for
the enjoyment of the citizenry, and those which come within the State’s territory and facilities and
protection which a government is supposed to provide.

Note: The existence of the govt is a necessity. It cannot continue without a means to pay its expenses
and therefore has a right to compel all citizens and property within its power to contribute. Without
taxes, the govt. cannot fulfill its mandate of promoting general welfare and well-being of the people.

Liabilities involved.

à Taxes are PERSONAL to the taxpayer

à Corporation’s tax delinquency cannot be enforced against its stockholder as it would run
counter to the principle that taxes are personal as well as it would not be accord with the rule
that a corp. is vested by law with a personality that is separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which may be related.
S.M.O

à Nevertheless, stockholders may be held liable for the unpaid taxes of a dissolved corporation
if it appears that the corporate assets have passed into their hands – Doctrine of Piercing the
Corporate Veil
à A tax creates CIVIL LIABILITY on the part of the delinquent taxpayer although non-
payment (failure or refusal to pay) creates a CRIMINAL LIABILITY which could be the
subject of criminal prosecution under existing laws. Thus, it is one’s failure to comply with
the civil liability to pay taxes which give rise to the criminal liability
Note:
Civil liability to pay taxes arises from the fact that one has engaged himself in business and not
because of any criminal act committed by him. The criminal liability arises upon failure of the debtor
to satisfy his civil obligation. Additionally, it should be borne in mind that the tax and the obligation
to pay the same are all created by statute; so are its collection and payment governed by statute. The
payment of taxes is a duty which the law requires to be paid. Said obligation is not a consequence of
the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from
crime that could be wiped out by the judicial declaration of non-existence of the criminal acts
charged.

4. Objectives of taxation
a. Revenue-raising;
b. Secondary or Non-Revenue Purposes (PRREP)

i. Promotion of General Welfare

ii. Regulation (as an implement of the police power of the State/
regulatory measure)
iii. Reduction of Social Inequality/ Compensatory Purpose
iv. Encourage Economic Growth
v. Protectionism

a. Revenue-raising

à revenues derived from taxes are intended primarily to finance the govt. and its activities.
à the primary purpose of taxation is to raise fund or property in order to enable the State to
promote the general welfare and protection of its citizens.

b. Secondary or Non-Revenue Purposes (PRREP)

a.) Promotion of General Welfare – taxation may be used as an implement of police power in order
to promote the general welfare of the people.

Illustration: Sugar Adjustment Act was imposed to strengthen the sugar industry (Lutz v. Araneta)

1. LUTZ v ARANETA
G.R. NO. L-7859 Dec. 22, 1955
S.M.O

REYES, J.B.L., J.

FACTS:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the
taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to
the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market";
wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from
the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to
prepare it for the eventuality of the loss of its preferential position in the United States market and
the imposition of the export taxes."

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid
by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950;
alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar
industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be
constitutionally levied. The action having been dismissed by the Court of First Instance, the plaintiff
appealed the case directly to the SC.

Issue: Whether the tax is valid in supporting an industry.

Held: The tax is levied with a regulatory purpose, i.e. to provide means for the rehabilitation and
stabilization of the threatened sugar industry. The act is primarily an exercise of police power, and
is not a pure exercise of taxing power. As sugar production is one of the great industries of the
Philippines; and that its promotion, protection and advancement redounds greatly to the general
welfare, the legislature found that the general welfare demanded that the industry should be
stabilized, and provided that the distribution of benefits therefrom be readjusted among its
component to enable it to resist the added strain of the increase in tax that it had to sustain. Further,
it cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency
in sugar production, utilization of by-products, etc., as well as to the improvement of living and
working conditions in sugar mills and plantations, without any part of such money being channeled
directly to private persons, constitute expenditure of tax money for private purposes.

The tax is valid.

Note: The tax provided for in the Act is not a pure exercise of taxing power. The tax is levied for a
regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry, in other words, the act is primarily an exercise of the police power.

b. Regulation (as an implement of the police power of the State/ regulatory measure) – taxation
may be used as an implement of the police power of the State with the end view of regulating a
particular activity; the power may be used in the rehabilitation and stabilization of threatened
industry, which is affected with public interest, e.g. oil industry.

Illustration: Taxes imposed upon the video industry as a regulatory measure, considering “the
unfair competition posed by rampant film piracy, the erosion of the moral fiber of the viewing
public brought by the availability of unclassified and unreviewed video tapes containing
S.M.O

pornographic films and films with brutally violent sequences; and losses in govt due to the drop in
the theatrical attendance. (Tio v. Videogram Regulatory Board)

Tio v. Videogram Regulatory Board 151 SCRA 208; G. R. No. L-75697; June 18, 1987

Facts:The case is a petition filed by petitioner on behalf of videogram operators adversely affected
by Presidential Decree No. 1987, “An Act Creating the Videogram Regulatory Board" with broad
powers to regulate and supervise the videogram industry. A month after the promulgation of the
said Presidential Decree, the amended the National Internal Revenue Code provided that:

"SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready
for playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured
or imported blank video tapes shall be subject to sales tax."

"Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision
of law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price
or rental rate, as the case may be, for every sale, lease or disposition of a videogram containing a
reproduction of any motion picture or audiovisual program.”

“Fifty percent (50%) of the proceeds of the tax collected shall accrue to
the province, and the other fifty percent (50%) shall accrue to the municipality where the tax is
collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the
City/Municipality and the Metropolitan Manila Commission.”

The rationale behind the tax provision is to curb the proliferation and unregulated circulation
of videograms including, among others, videotapes, discs, cassettes or any technical
improvement or variation thereof, have greatly prejudiced the operations of movie houses and
theaters. Such unregulated circulation have caused a sharp decline in theatrical attendance
by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's
specific, amusement and other taxes, thereby resulting in substantial losses estimated at P450
Million annually in government revenues.

Videogram(s) establishments collectively earn around P600 Million per annum from
rentals, sales and disposition of videograms, and these earnings have not been subjected
to tax, thereby depriving the Government of approximately P180 Million in taxes each
year. The unregulated activities of videogram establishments have also affected the viability
of the movie industry.

Issues:

(1) Whether or not tax imposed by the DECREE is a valid exercise of police power. Yes

(2) Whether or nor the DECREE is constitutional.

Yes
S.M.O

Held:Taxation has been made the implement of the state's police power. The levy of the 30%
tax is for a public purpose. It was imposed primarily to answer the need for regulating the video
industry, particularly because of the rampant film piracy, the flagrant violation of intellectual
property rights, and the proliferation of pornographic video tapes. And while it was also an
objective of the DECREE to protect the movie industry, the tax remains a valid imposition.

We find no clear violation of the Constitution which would justify us in pronouncing Presidential
Decree No. 1987 as unconstitutional and void. While the underlying objective of the DECREE
is to protect the moribund movie industry, there is no question that public welfare is at
bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the
erosion of the moral fiber of the viewing public brought about by the availability of unclassified
and unreviewed video tapes containing pornographic films and films with brutally violent
sequences; and losses in government revenues due to the drop in theatrical attendance, not
to mention the fact that the activities of video establishments are virtually untaxed since mere
payment of Mayor's permit and municipal license fees are required to engage in business."

WHEREFORE, the instant Petition is hereby dismissed. No cost.

PAL v EDU
G.R. No. L-41383 (August 15, 1988)

Philippine Airlines (PAL) is engaged in air transportation business under a legislative franchise. Its
franchise exempts PAL from the payment of “taxes of any kind, nature or description, levied,
established or collected by any municipal, provincial or national automobiles…” Hence, PAL has
not been paying motor vehicle registration fees.

In 1971, however, Land Transportation Commissioner Romeo F. Elevate issued a regulation

requiring all tax exempt entities, among them PAL, to pay motor vehicle registration fees. The
Commission refused to register PAL’s motor vehicles unless the company paid for the motor vehicle
registration fees. PAL paid the registration fees under protest. After which, PAL through counsel,
wrote to LTC Commissioner Edu demanding a refund, citing the case of Calalang v Lorenzo where
it was held that motor vehicle registration fees are in reality taxes of which PAL is exempt by virtue
of its legislative franchise. Commissioner Edu denied the request, citing Republic v Philippine Rabbit
Bus Lines, Inc., to the effect that motor vehicle registration fees are regulatory and not revenue
measures and therefore do not come within the exemption granted to PAL.

ISSUE: What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

RULING: Fees may be properly regarded as taxes even though they also serve as an instrument
of regulation. If the purpose is primarily revenue, or if revenue is at least one of the real and
substantial purposes, then the exaction is called a tax. It appears that the legislators had in mind
a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a
motor vehicle as a “tax or fee.”

Motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic
Code are actually taxes intended for additional revenues of government even if one fifth or less of
the amount collected is set aside for the operating expenses of the agency administering the program.
S.M.O imposing Ye'd
-
act
taxes Frintonpassenger
1 auto
.

However, PAL is not entitled to a refund as Republic Act No. 5448 (June 27, 1968) had repealed all
earlier tax exemptions of corporate tax payers found in legislative franchises similar to that invoked
by PAL in this case. Any registration fees collected between June 27, 1968 and April 9, 1979 were
correctly imposed because the exemption in PAL’s franchise was repealed during that period. An
amended franchise was granted to PAL in 1979, clearly and specifically exempting the company
“from the payment of any tax, fee, or other charge on the registration of motor vehicles.”

c. Reduction of Social Inequality/ Compensatory Purpose – the present tax system has
adopted the progressive sytem of taxation, i.e., the tax rate increases as the tax base -
Sec 28 ( t ),art 6,
. .

1987 Consti
increases. This system aims at reducing the inequality in the distribution of wealth by .

preventing its undue concentration in the hands of a few individuals.

Illustration: an estate tax is imposed upon the property left by the decedent. The proceeds of
that tax will be used to finance the projects of the govt. such as bldg. low-cost houses for the
less privileged.

d. Encourage Economic Growth – tax exemptions and tax reliefs serve as incentives to
encourage investment in our local industry and thereby promoting economic growth.

Illustration: the grant of preferential tax treatment for business that are registered with
Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA) and
the like.

e. Protectionism (re Special Duties under the Tariff and Customs Code; See also RA 8800 re
Safeguard Measures Act) - in the case of foreign importations, taxes sometimes provide
protection to local industries like protective tariffs and customs duties <imposing taxes on
imported articles?>

Illustration: The Anti-Dumping Act, which protects our local industries against importations
sold at a lower cost.
S.M.O

à RA 8800 re Safeguard Measures Act

Republic Act No. 8800, otherwise known as the Safeguard Measures Act (the “Act”) provides
temporary protection to a Philippine industry affected by the surge in imports. It authorizes the
Philippine government to restrict imports, after investigations carried out by competent
authorities, establishes that imports are taking place in such increased quantities as to cause or
threaten to cause serious injury to the domestic industry that produces like or directly competitive
products. The measure is applied to imports of like or directly competitive products from all
sources. The legislation lays down the criteria which must be considered in determining whether
increased imports are causing serious injury to the domestic industry. It also sets out basic
procedural requirements for the conduct of an investigation.

à What are Safeguard Measures?

Safeguard measures are emergency reliefs provided to domestic industries to allow them time to
adjust to increased competition from imports. Its primary purpose is to provide temporary
increased protection to give affected industries time to prepare itself for the competition that it
will have to face after the temporary protection is removed. The definitive measures including any
extension are applied for a maximum period of ten (10) years.

b. Taxation as a process

1. Stages in the tax process

a.) Levy or imposition

b.) Assessment and collection
c.) Payment

The stages of taxation are; (L-A-P)

(1) Levy or imposition - refers to the enactment of tax laws. It is legislative in nature as the
legislature have the discretion which tax shall be levied, subjects of taxation, amount or rate of
tax and the manner, means and agencies of collection of taxes; LSAMA

Note: Judicial Review of Taxation: If an abuse is manifested as to destroy natural and

fundamental rights which no free govt. could consistently violate, it is the duty of the judiciary to
hold such act unconstitutional. Sison v. Ancheta
-

(2) Assessment and collection - It is the act of assessing and collecting taxes and provides for
the implementation, enforcement or administration of tax laws. It is administrative in nature.
(BIR and/or Sec of Finance wield this power); and
(3) Payment - defined as the compliance by the taxpayer.

2. Principles of a sound tax system (FAT)

The three fundamental principles of a sound taxation are fiscal adequacy, theoretical justice, and
administrative feasibility.

a.) Fiscal adequacy: dictates that sources of revenue must be sufficient to meet government
expenditures and other public needs as in consonance with the doctrine that taxes are the
lifeblood of the govt.
S.M.O
b.) Theoretical justice: mandates that taxes must be imposed based on the taxpayer’s ability to
pay. Hence, taxes must be reasonable, just, fair and conscionable.
RJFC
Art. VI, Sec. 28 (1): “The rule of taxation must be uniform and equitable. The State must
evolve a progressive system of taxation.

Note: Equitable Taxation: when its burden falls on those better able to pay; Progressive Taxation:
when its rate goes up depending on the resources of the person affected.

c.) Administrative feasibility: requires that tax laws must be capable of effective and efficient
enforcement. They must not obstruct business growth and economic development.

Violation of the principle of a sound tax system may or may not invalidate a tax law.

à A tax law will retain its validity even if it is NOT in consonance with the principle of fiscal
adequacy and admin. Feasibility because the Constitution are only designed to make our
tax system sound.
à However, if a tax law runs contrary to the principle if theoretical justice, such violation will
render the law UNCONSTITUTIONAL considering that under the Constitution, the rule
of taxation should be uniform and equitable. (Sec. 28 (1), Art VI, 1987 Consti.)

SCOPE OF THE LEGISLATIVE POWER TO TAX

1. LUTZ v ARANETA
G.R. NO. L-7859 Dec. 22, 1955

REYES, J.B.L., J.

FACTS:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of
the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due
to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in
the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States
market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits
derived from the sugar industry by the component elements thereof" and "to stabilize the sugar
industry so as to prepare it for the eventuality of the loss of its preferential position in the United
States market and the imposition of the export taxes."

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40
paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-
1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of
the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax
may be constitutionally levied. The action having been dismissed by the Court of First Instance,
the plaintiff appealed the case directly to the SC.

Issue: Whether the tax is valid in supporting an industry.

S.M.O
Held: The tax is levied with a regulatory purpose, i.e. to provide means for the rehabilitation and
stabilization of the threatened sugar industry. The act is primarily an exercise of police power, and
is not a pure exercise of taxing power. As sugar production is one of the great industries of the
Philippines; and that its promotion, protection and advancement redounds greatly to the general
welfare, the legislature found that the general welfare demanded that the industry should be
stabilized, and provided that the distribution of benefits therefrom be readjusted among its
component to enable it to resist the added strain of the increase in tax that it had to sustain. Further,
it cannot be said that the devotion of tax money to experimental stations to seek increase of
efficiency in sugar production, utilization of by-products, etc., as well as to the improvement of
living and working conditions in sugar mills and plantations, without any part of such money being
channeled directly to private persons, constitute expenditure of tax money for private purposes.

The tax is valid.

Note: The tax provided for in the Act is not a pure exercise of taxing power. The tax is levied for
a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry, in other words, the act is primarily an exercise of the police power.

2. GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga.
It did not bear the special anti-TB stamp required by the RA 1635. It was returned to the petitioner.
Petitioner now assails the constitutionality of the statute claiming that RA 1635 otherwise known
as the Anti-TB Stamp law is violative of the equal protection clause because it constitutes mail
users into a class for the purpose of the tax while leaving
untaxed the rest of the population and that even among postal patrons the statute discriminatorily
grants
exemptions. The law in question requires an additional 5 centavo stamp for every mail being
posted, and no mail
shall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal
protection clause?

HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation
and to grant
exemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is
said that in the
field of taxation, more than in other areas, the legislature possesses the greatest freedom in
classification. The
reason for this is that traditionally, classification has been a device for fitting tax programs to local
needs and
usages in order to achieve an equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on
administrative APA
convenience. Tax exemptions have never been thought of as raising revenues under the equal
protection clause.
S.M.O
3. PUNSALAN VS. MUNICIPAL BOARD OF MANILA
[95 PHIL 46; NO.L-4817; 26 MAY 1954]

Facts: Petitioners, who are professionals in the city, assail Ordinance No. 3398 together with the law
authorizing it (Section 18 of the Revised Charter of the City of Manila). The ordinance imposes a
municipal occupation tax on persons exercising various professions in the city and penalizes non-
payment of the same. The law authorizing said ordinance empowers the Municipal Board of the city
to impose a municipal occupation tax on persons engaged in various professions. Petitioners, having
already paid their occupation tax under section 201 of the National Internal Revenue Code, paid the
tax under protest as imposed by Ordinance No. 3398. The lower court declared the ordinance invalid
and affirmed the validity of the law authorizing it.

Issue: Whether or Not the ordinance and law authorizing it constitute class legislation, and authorize
what amounts to double taxation.

Held: The Legislature may, in its discretion, select what occupations shall be taxed, and in its
discretion may tax all, or select classes of occupation for taxation, and leave others untaxed. It is not
for the courts to judge which cities or municipalities should be empowered to impose occupation
taxes aside from that imposed by the National Government. That matter is within the domain of
political departments. The argument against double taxation may not be invoked if one tax is imposed
by the state and the other is imposed by the city. It is widely recognized that there is nothing inherently
terrible in the requirement that taxes be exacted with respect to the same occupation by both the state
and the political subdivisions thereof. Judgment of the lower court is reversed with regards to the
ordinance and affirmed as to the law authorizing it.

---STOPPED HERE – 08.15.22 (First meeting)

B. The concept and characteristics of taxes (SLEM-PPP-RP)

1.) It is imposed by the State which has JD over the person, property or services;
2.) It is levied by the Law-making body of the state;
3.) It is an Enforced contribution – not dependent on the will of the person taxed, not a
contract but a positive act of the govt;
4.) It is generally payable in Money – it is a pecuniary burden payable in money, but
backpay certificates maybe used in payment of tax;
5.) It is Proportionate in character – taxes must be based on ability to pay in accordance with
the constitutional mandate to Congress to evolve progressive system of taxation;
6.) It is levied on Persons, property, and excise;
7.) It is levied for Public purpose/s;
8.) It is paid at Regular periods or intervals; and

e.g.

i. Income Taxes are paid quarterly and annually;

ii. VAT are paid monthly and quarterly

9.) It is Personal to the taxpayer

e.g.
S.M.O
i. Non-enforceability of estate taxes against heirs accruing upon transmission of
decedent’s estate

• EXN: If prior to the payment of estate tax on the transfer of decedent’s

estate, the properties of the deceased are distributed to any beneficiary, the
latter shall be subsidiarily liable for the payment of such portion of the
estate tax as his distributive share bears to the total value of the net estate.

ii. Exemption from liability of stockholders in case of the corporation’s tax

delinquency.

• EXN/s:

o Stockholders may be held liable for the unpaid taxes of a dissolved

corporation if it appears that the corporate assets have passed into
their hands
o When stockholders have unpaid subscriptions to the capital of the
corporation, they can be made liable to the extent of their unpaid
subscription.

TAXES ARE NOT SUBJECT OF SET OFF

As a rule, taxes cannot be subject to compensation because the government and the
taxpayer are not creditors and debtors of each other.

However, the Supreme Court allowed offsetting of taxes only because the determination
of the taxpayer’s liability is intertwined with the resolution of the claim for tax refund of
erroneously or illegally collected taxes under Section 229 of the NIRC.
tax credit .

Compensation and Set-off

Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other (CC, Art. 1278)
This presupposes mutual obligations between the parties and that they are mutual creditors
and debtors of each other (CC, Art. 1270 (1)

G.R. : There can be no off-setting of taxes against the claims that the taxpayer may have against
the govt.

Note: A person cannot refuse to pay a tax on the ground that the govt. owes him an amount equal
to or greater than the tax being collected. The collection of a tax cannot await the results of a
lawsuit against the govt. Lifeblood

Rationale: Taxes are not in the nature of contracts between the parties but grow out of duty to and
are the positive acts of the govt. to the making and enforcing of which, the personal consent of
individual is not required.

EXN: If the obligation to pay taxes and the taxpayer’s claim against the govt. are both overdue, ODL
demandable and fully liquidated, compensation takes place by operation of law and both
obligations are extinguished to their concurrent amount.
S.M.O
à The govt. may be allowed to set-off a taxpayer claim for refund that has been finally
adjudged by the courts in favor of the taxpayer as against a tax assessment that the Govt.
issued to such taxpayer even if such assessment is not yet final.
à On the other hand, the taxpayer cannot claim the defense of compensation since the claim
for refund was not yet liquidated and demandable. Such claim cannot be raised as a defense
against a deficiency assessment.

1. Engracio Francia vs. Intermediate Appellate Court - 162 SCRA 753 Case Digest

FACTS: Engracio Francia was the owner of a 328 square meter land in Pasay City. In October 1977,
a portion of his land (125 square meter) was expropriated by the government for P4,116.00. The
expropriation was made to give way to the expansion of a nearby road.

It also appears that Francia failed to pay his real estate taxes since 1963 amounting to P2,400.00. So
in December 1977, the remaining 203 square meters of his land was sold at a public auction (after due
notice was given him). The highest bidder was a certain Ho Fernandez who paid the purchase price
of P2,400.00 (which was lesser than the price of the portion of his land that was expropriated).

Later, Francia filed a complaint to annul the auction sale on the ground that the selling price was
grossly inadequate. He further argued that his land should have never been auctioned because the
P2,400.00 he owed the government in taxes should have been set-off by the debt the government
owed him (legal compensation). He alleged that he was not paid by the government for the
expropriated portion of his land because though he knew that the payment therefor was deposited in
the Philippine National Bank, he never withdrew it.

ISSUE: Whether or not the tax owed by Francia should be set-off by the “debt” owed him by the
government.

HELD: No. As a rule, set-off of taxes is not allowed. There is no legal basis for the contention. By
legal compensation, obligations of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code). This is not applicable in taxes. There
can be no off-setting of taxes against the claims that the taxpayer may have against the government.
A person cannot refuse to pay a tax on the ground that the government owes him an amount equal
to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit
against the government.

The Supreme Court emphasized: A claim for taxes is not such a debt, demand, contract or judgment
as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of
public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to
one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment
since they do not arise out of the contract or transaction sued on.

Further, the government already Francia. All he has to do was to withdraw the money. Had he done
that, he could have paid his tax obligations even before the auction sale or could have exercised his
right to redeem – which he did not do.

Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same is not tenable. The
Supreme Court said: “alleged gross inadequacy of price is not material when the law gives the owner
the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price,
the easier it is for the owner to effect redemption.” If mere inadequacy of price is held to be a valid
objection to a sale for taxes, the collection of taxes in this manner would be greatly embarrassed, if
S.M.O
not rendered altogether impracticable. “Where land is sold for taxes, the inadequacy of the price given
is not a valid objection to the sale.” This rule arises from necessity, for, if a fair price for the land were
essential to the sale, it would be useless to offer the property. Indeed, it is notorious that the prices
habitually paid by purchasers at tax sales are grossly out of proportion to the value of the land.

2. Melecio R. Domingo, as Commissioner of Internal Revenue vs. Hon. Lorenzo C.

Garlitos, in his capacity as Judge of the Court of First Instance of Leyte, and
Simeona K. Price, as Administratrix of the Intestate Estate of the late Walter Scott
Price
G.R. No. L-18994 June 29, 1963
FACTS:
In special proceedings No. 14 entitled “In the matter of the Intestate Estate of the Late Walter Scott
Price”, the Court of First Instance of Leyte ordered the payment of the estate and inheritance taxes,
charges and penalties, amounting to P40,058.55 by the estate. It became final and executory so the
fiscal applied for the execution of the judgment which was denied on the ground that the Government
was indebted to the estate in the amount of P262,200 which had been appropriated for the purposes
of R.A. No. 2700.
Furthermore, the Court ordered that the payment of the claim of the Collector of Internal Revenue
be deferred until the Government shall have paid its accounts to the administratrix herein amounting
to P262,200.00
ISSUE:
Are compensation and writ of execution the proper procedure for the payment of debts and expenses
of administration?
RULING:
No, a writ of execution is not the proper procedure for the payment of debts and expenses of
administration. The proper procedure is for the court to order the sale of personal estate or the sale
or mortgage of real property of the deceased and all debts or expenses of administrator and with the
written notice to all the heirs, legatees and devisees residing in the Philippines. And when sale or
mortgage of real estate is to be made, the regulations contained in Rule 90, section 7, of the Rules of
Court should be complied with.
Execution may issue only where the devisees, legatees or heirs have entered into possession of their
respective portions in the estate prior to settlement and payment of the debts and expenses of
administration and it is later ascertained that there are such debts and expenses to be paid, in which
case “the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle
the amount of their several liabilities, and order how much and in what manner each person shall
contribute, and may issue execution if circumstances require”
The Court allowed the compensation since the Government had not denied it owed the estate’s
claim. It considered that both the claim of the Government for inheritance taxes and the claim of the
intestate for services rendered had already become overdue and demandable as well as fully liquidated.
In fact, a law (Republic Act No. 2700) has appropriated a fund for its payment.

3. PHILEX MINING CORP. v. CIR

GR No. 125704, August 28, 1998
294 SCRA 687

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the
Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the
period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994
until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand
for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the
S.M.O
taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore, these claims
for tax credit/refund should be applied against the tax liabilities.

ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the
petitioner?

HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the
lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to
countenance Philex's whimsical reason would render ineffective our tax collection system. Too
simplistic, it finds no support in law or in jurisprudence. To be sure, Philex cannot be allowed to refuse
the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit
against the government which has not yet been granted. Taxes cannot be subject to compensation for
the simple reason that the government and the taxpayer are not creditors and debtors of each other.
There is a material distinction between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be
no off-setting of taxes against the claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater
than the tax
being collected. The collection of a tax cannot await the results of a lawsuit against the government.
?
Doctrine of Equitable Recoupment Set go - -

This doctrine of law states that a tax claim for refund, which is prevented by prescription,
may be allowed to be used as payment for unsettled tax liabilities if both taxes arise from the same
transaction in which overpayment is made and underpayment is due.

NOTE: THIS DOCTRINE IS NOT APPLICABLE IN OUR JD. The reason is that “if allowed, both
the collecting agency and the taxpayer might be tempted to delay and neglect the pursuit of their
respective claims within the period prescribed by law

Is market stall fee a license or a tax?

The market stall fees are considered as license because the objective of imposing market
stall fees is regulation and not revenue generation. Tax is imposed in the exercise of police power
primarily for purposes of regulation, while the latter is imposed under the taxing power primarily
for purposes of raising revenues. Thus, if the generating of revenue is the primary purpose and
regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the
fact that incidentally revenue is also obtained does not make the imposition a tax.

Rationale: Tax is imposed in the exercise of police power primarily for purposes of regulation,
while the latter is imposed under the taxing power primarily for purposes of raising revenues. Thus,
if the generating of revenue is the primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is
also obtained does not make the imposition a tax.

Distinction between a license and a tax

The distinctions between a license and a tax are as follows;

1. As to the exercise of power – a tax is levied in the exercise of the taxing power, while license
fees emanate from the police power of the State;
S.M.O
2. As to purpose – the primary purpose of taxation is to generate revenues, while license fees are
imposed primarily for regulation;

3. As to subject – the subject of taxation is persons, properties, activities, while the subject of
license is limited to the right to engage in a business or activity;

4. As to consequence in case of non-payment – failure to pay tax makes your business illegal.
While failure to pay does not have that effect as it is merely a regulatory fee.

Universal Charge under EPIRA Law (Electric Power Industry Reform Act of 2001)

Is that a license or a tax?

It is a license. In Gerochi v. Department of Energy, the Supreme Court held that the Universal
Charge is a license. It is imposed and can be amply discerned as regulatory in character because
in the EPIRA Law, the State’s police power, particularly its regulatory dimension, is invoked.

Is the Coco Levy Fund a tax or a license? Is it a regulatory imposition or tax?

It is a tax. In Cojuangco, Jr. vs. Republic,[3] the Court ruled that the coco levy funds are taxes
since the purpose of its imposition is to raise revenue for the rehabilitation of the coconut
industry.

Is the building permit fee a tax or a license?

NO. It is a regulatory fee.

à Why is a building permit a regulatory fee?

That a building permit fee is a regulatory imposition is highlighted by the fact that:
1.) In processing an application for a building permit, the Building Official shall see to it that
the applicant satisfies and conforms to the approved standard requirements on zoning and
land use, lines and grades, structural design, sanitary and sewerage, environmental health,
electrical and mechanical safety;

2.) Clearances from various government authorities exercising and enforcing regulatory
functions affecting buildings /structures may be required before a building permit may be
issued.

Is the Socialized Housing Tax a tax or a regulatory fee?

A: NO. It is not a tax imposed by the local government but a license/regulatory fee. Its name is
misleading.

Rationale: It is levied with a regulatory purpose. The levy is primarily in the exercise of the police
power for the general welfare of the entire city. It is greatly imbued with public interest. Removing
slum areas in Quezon City is not only beneficial to the underprivileged and homeless constituents
but advantageous to the real property owners as well. The situation will improve the value of their
property investments, fully enjoying the same in view of an orderly, secure, and safe community,
and will enhance the quality of life of the poor, making them law-abiding constituents and better
consumers of business products.
S.M.O
C. Limitations on the exercise of the taxing power

The inherent limitations on taxation are as follows (PIITE);

1. Public purpose;
2. Territoriality;
3. International comity;
4. Exemption from taxation of government agencies and instrumentalities;
5. Inherently legislative/ Non-delegation of the power to tax

a. Inherent Limitations
1. Public Purpose (SOW)

The proceeds of tax must be used (a) for the support of the State or (b) for some recognized
objective of the government or to directly promote the welfare of the community.

Tax is considered for public purpose if (WCS):

1. It is for the welfare of the nation and/or for greater portion of the population;
2. It affects the area as a community rather than as individuals; and
3. It is designed to support the services of the government for some of its recognized
objects.

Note: “Public” may refer to a special group of persons. The senior citizens are a special group of
persons who have contributed to the general welfare and common good of the nation in the prime
of their lives.

NOTE: The term “public purpose” is not defined. It is an elastic concept that can be hammered
to fit modern standards. Jurisprudence states that “public purpose” should be given a broad
interpretation. It does not only pertain to those purposes which are traditionally viewed as
essentially government functions, such as building roads and delivery of basic services, but also
includes those purposes designed to promote social justice. Thus, public money may now be used
for the relocation of illegal settlers, low-cost housing and urban agrarian reform . – as long as the
ultimate result favors the welfare of the public in general, the appropriation of a public revenue is
deemed done for a public purpose (e.g. 20% discount privilege for senior citizens under RA 9257)

Determination when enacted tax law is for public purpose

It lies in the Congress. However, this will not prevent the court from questioning the
propriety of such statute on the ground that the law enacted is not for a public purpose; but once
it is settled that the law is for a public purpose, the court may no longer inquire into the wisdom,
expediency or necessity of such tax measure.

NOTE: If the tax measure is not for public purpose, the act amounts to confiscation of property.

a. BENJAMIN P. GOMEZ vs ENRICO PALOMAR

G.R. No. L-23645 October 29, 1968

FACTS:
S.M.O
-This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by
Republic Act 2631,2 which provides as follows:

To help raise funds for the Philippine Tuberculosis Society, the Director of Posts
shall order for the period from August nineteen to September thirty every year the
printing and issue of semi-postal stamps of different denominations with face value
showing the regular postage charge plus the additional amount of five centavos for
the said purpose, and during the said period, no mail matter shall be accepted in the
mails unless it bears such semi-postal stamps: Provided, That no such additional
charge of five centavos shall be imposed on newspapers. The additional proceeds
realized from the sale of the semi-postal stamps shall constitute a special fund and be
deposited with the National Treasury to be expended by the Philippine Tuberculosis
Society in carrying out its noble work to prevent and eradicate tuberculosis.

- The respondent Postmaster General Enrico Palomar, in implementation of the law, issued
four (4) administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958),
and 10 (July 15, 1960). All these administrative orders were issued with the approval of the
respondent Secretary of Public Works and Communications.
-On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office
in San Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014
Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp required by the statute, it
was returned to the petitioner.
- In view of this development, the petitioner brought suit for declaratory relief in the Court
of First Instance of Pampanga, to test the constitutionality of the statute, as well as the
implementing administrative orders issued, contending that it violates the equal protection clause of
the Constitution as well as the rule of uniformity and equality of taxation.
-The lower court declared the statute and the orders unconstitutional; hence this appeal by
the respondent postal authorities.

ISSUES:
WON the statute is violative of the equal protection clause of the Constitution. More specifically the
claim is made that it constitutes mail users into a class for the purpose of the tax while leaving
untaxed the rest of the population and that even among postal patrons the statute discriminatorily
grants exemption to newspapers while Administrative Order 9 of the respondent Postmaster
General grants a similar exemption to offices performing governmental functions.

HELD:
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an
excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. As such the
objections levelled against it must be viewed in the light of applicable principles of taxation.

To begin with, it is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions. This power has aptly been described as "of wide range and
flexibility." Indeed, it is said that in the field of taxation, more than in other areas, the legislature
possesses the greatest freedom in classification. The reason for this is that traditionally, classification
has been a device for fitting tax programs to local needs and usages in order to achieve an equitable
distribution of the tax burden.

It is not accurate to say that the statute constituted mail users into a class. Mail users were
already a class by themselves even before the enactment of the statue and all that the legislature did
was merely to select their class. Legislation is essentially empiric and Republic Act 1635, as amended,
no more than reflects a distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize
S.M.O
differences that exist in fact is living law; to disregard [them] and concentrate on some abstract
identities is lifeless logic."

As for the Government and its instrumentalities, their exemption rests on the State's
sovereign immunity from taxation. The State cannot be taxed without its consent and such consent,
being in derogation of its sovereignty, is to be strictly construed.12 Administrative Order 9 of the
respondent Postmaster General, which lists the various offices and instrumentalities of the
Government exempt from the payment of the anti-TB stamp, is but a restatement of this well-
known principle of constitutional law.

It is never a requirement of equal protection that all evils of the same genus be eradicated or
none at all. As this Court has had occasion to say, "if the law presumably hits the evil where it is
most felt, it is not to be overthrown because there are other instances to which it might have been
applied."

ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without
pronouncement as to costs.

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal,

petitioner and appellant, v. THE SECRETARY OF PUBLIC WORKS AND
COMMUNICATIONS, ET AL., respondents and appellees.
EN BANC | CONCEPCION, J.:
G.R. No. L-10405 | December 29, 1960

FACTS:

1. August 31, 1954 – Rizal Governor Wenceslao Pascual instituted an action for
declaratory relief, with injunction upon the ground that Republic Act No. 920, entitled
An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained,
in section 1-C (a) thereof, an item (43[h]) of P85,000.00, "for the construction,
reconstruction, repair, extension and improvement" of" Pasig feeder road terminals
(Gen. Roxas — Gen. Araneta — Gen. Lucban — Gen. Capinpin — Gen. Segundo —
Gen. Delgado — Gen. Malvar — Gen. Lim)"
a. The feeder roads were "nothing but projected and planned subdivision roads, not
yet constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig,
Rizal, which projected feeder roads "do not connect any government property or
any important premises to the main highway" ;
b. The Antonio Subdivision (as well as the lands on which said feeder roads were
to be constructed) where private respondent Senator Jose C. Zulueta Rizal offered
to donate said projected feeder roads to the municipality of Pasig, Rizal
c. June 13, 1953 – Pasig council accepted donation, subject to the condition "that
the donor would submit a plan of the said roads and agree to change the names
of two of them"
2. No deed of donation in favor of the municipality of Pasig was executed
3. Zulueta wrote another letter to said council, calling attention to the approval of
Republic Act No. 920
4. Petitioner asserts that RA No.920 appropriating P85,000.00 for the construction… was
"illegal and, therefore, void ab initio" and was made by Congress because its members
were made to believe that the projected feeder roads in question were "public roads and
not private streets of a private subdivision"
5. Petitioner also says the donation violated the provision of our fundamental law
S.M.O
prohibition members of Congress from being directly or indirectly financially interested
in any contract with the Government, and, hence, is unconstitutional, as well as null
and void ab initio, greatly enhancing or increasing the value of the aforementioned
subdivision of respondent Zulueta
6. Respondents moved to dismiss the petition upon the ground that petitioner had "no legal
capacity to sue", and that the petition did "not state a cause of action." Also, the
Provincial Fiscal of Rizal, not its provincial governor, should represent the Province
Administrative Code

Lower Court: Favored private respondent. There is public purpose because people living in the
subdivision will directly be benefitted from the construction of the roads, and the government
also gains from the donation of the land supposed to be occupied by the streets, made by its
owner to the government.

ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose
of justifying an expenditure of the government? NO

HELD:

Reversed Lower Court. It was "clearly for a private, not a public purpose" and therefore null
and void. The Act for the purpose of giving a "semblance of legality" to the appropriation, does
not cure the basic defect. Consequently, a judicial nullification of said donation need not
precede the declaration of unconstitutionality of said appropriation.

Since public interest is involved in this case, the Provincial Governor of Rizal and the provincial
fiscal thereof who represents him therein, "have the requisite personalities" to question the
constitutionality of the disputed item of Republic Act No. 920

- "the legislature is without power to appropriate public revenues for anything but a
public purpose"
- if such roads were private property, it would not be a public purpose
- the donation is a contract; "absolutely forbidden by the Constitution" and consequently
illegal", for Article 1409 of the Civil Code of the Philippines, declares inexistent and
void from the very beginning contracts"

Generally, under the express or implied provisions of the constitution, public funds may be used
only for a public purpose. The right of the legislature to appropriate public funds is correlative
with its right to tax, and, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to
another purpose, no appropriate of state funds can be made for other than a public purpose.

Corpus Juris Secundum: “money raised by taxation can be expanded only for public
purposes and not for the advantage of private individuals." The right of the legislature
to appropriate funds is correlative with its right to tax, under constitutional provisions
against taxation except for public purposes and prohibiting the collection of a tax for
one purpose and the devotion thereof to another purpose, no appropriation of state funds
can be made for other than a public purpose. . .
S.M.O
Test of the constitutionality: whether the statute is designed to promote the public interests

Only persons individually affected, but also taxpayers, have sufficient interest in preventing the
illegal expenditure of moneys raised by taxation and may therefore question the constitutionality
of statutes requiring expenditure of public moneys.

Province of Tayabas v. Perez: 2 taxpayers were allowed to intervene for the purpose of
contesting the price being paid to the owner thereof, as unduly exorbitant

b. Lutz v. Araneta, supra

Doctrine: The protection of an industry or the act of the state in favoring an industry is still for
public purpose as long as said industry affects the welfare of so great a portion of the population
of the State affected to such an extent by public interests.

Facts: In 1940, the CA no. 567, otherwise known as the “Sugar Adjustment Act” was enacted
with the purpose of establishing safety nets to the Philippine Sugar Industry for its eventual pullout
from the American Markets. Plaintiff, Walter Lutz, in his capacity as Judicial Admin of the
Intestate Estate of Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the
sum of P14, 666.40 paid by the estate as taxes, under sec. 3 of the Act, for the crop yrs 1948-1949
and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in plaintiff’s opinion is not a public purpose for
which a tax may be constitutionally levied.

Lower Court Ruling: The action having been dismissed by the CFI, the plaintiffs appealed the
case directly to this Court (Judiciary Act, sec. 17). The basic defect in the plaintiff’s position is his
assumption that the tax provided for in CA no. 567 is a pure exercise of the taxing power. Analysis
of the Act and particularly of sec. 6, will show that the tax is levied with a regulatory purpose, to
provide the means for the rehabilitation and stabilization of the threatened sugar industry. In other
words, the act is primarily an exercise of the police power.

Issue: WON CA 567 is unconstitutional as it favors specific industry namely the sugar industry
and therefore not for public purpose.

Ruling: CA 567 is constitutional. The promotion, protection and advancement of the Sugar
industry is a matter of public concern as sugar production is one of the great industries of our
nation, sugar occuplying a leading position among its export products; that it gives employment
to thousand of laborers in fields and factories; that it is a great source of the state’s wealth, is one
of the important sources of foreign exchange needed by our govt., and is thus pivotal in the plans
of a regime committed to a policy of currency stability. The tax is levied with a regulatory purpose,
to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other
words, Taxation may be made implement of the state’s police power.
S.M.O
It is therefore necessary that the legislature to stabilize and preserve the sugar industry through its
exercise of police power so that the strain and burden of the increase in taxes shouldered by the
industry would be lessened.

As stated in Johnson v/ State ex rel. Marey, with reference to the citrus industry in Florida : The
protection of a large industry constituting one of the great sources of the state’s wealth and
therefore directly or indirectly affecting the welfare of so great a portion of the population of the
State is affected to such an extent by public interests as to be within the police power of the
sovereign.

Decision: Decision appealed from is affirmed. With cost against appellant. So ordered.

a. GOMEZ v. PALOMAR, GR No. L-23645, October 29, 1968v (umulit lang hehe)

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga.
It did not bear the special anti-TB stamp required by the RA 1635, which was enacted to help
raise funds for the Philippine Tuberculosis Society. It provides that the Director of Posts shall
order for the period from August 19to September 30 every year the printing and issue of
semi­postal stamps of different denominations with face value showing the regular postage charge
plus the additional amount of five centavos for the said purpose, and during the said period, no
mail matter shall be accepted in the mails unless it bears such semi­postal stamps: Provided,
That no such additional charge of five centavos shall be imposed on newspapers. The additional
proceeds realized from the sale of the semi­postal stamps shall constitute a special fund and be
deposited with the National Treasury to be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate tuberculosis. It was returned to the petitioner.

Petitioner brought a suit for declaratory relief in the Court of First Instance of Pampanga, to test
the constitutionality of the statute, as well as the implementing administrative orders issued,
contending that it violates the equal protection clause of the Constitution as well as the rule of
uniformity and equality of taxation. The lower court declared the statute and the orders
unconstitutional; hence this appeal by the respondent postal authorities.

ISSUES: Whether or not the tax in question is levied for a public purpose and violates the rule of
uniformity in taxation?Yes

RULING: The judgment a quo is reversed, and the complaint is dismissed.

RATIO:

The tax is levied for a public purpose and does not violate the rule of uniformity in taxation.

The petitioner further argues that the tax in question is invalid, first, because it is not levied for a
public purpose as no special benefits accrue to mail users as taxpayers, and second, because it
violates the rule of uniformity in taxation.
S.M.O
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner
means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that the
only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment
of the privileges of living in an organized society, established and safeguarded by the devotion
of taxes to public purposes.

Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate
rather than a graduated tax. A tax need not be measured by the weight of the mail or the extent of
the service rendered. We have said that considerations of administrative convenience and cost
afford an adequate ground for classification. The same considerations may induce the legislature
to impose a flat tax which in effect is a charge for the transaction, operating equally on all persons
within the class regardless of the amount involved.

c. TIO vs. VRB

151 SCRA 208
GR No. L-75697, June 18, 1987

"The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another."

FACTS: The petitioner assails the validity of PD 1987 entitled an "Act creating the Videogram
Regulatory Board," citing especially Section 10 thereof, which imposes a tax of 30% on the gross
receipts payable to the local government. Petitioner contends that aside from its being a rider and not
germane to the subject matter thereof, and such imposition was being harsh, confiscatory, oppressive
and/or unlawfully restraints trade in violation of the due process clause of the Constitution.

ISSUE: Is PD 1987 a valid exercise of taxing power of the state?

HELD: Yes. It is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. The power to impose taxes is one
so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as those rest in the discretion of the authority which
exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also
an objective of the DECREE to protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another.

D. CITY OF BAGUIO vs. DE LEON

25 SCRA 938
GR No. L-24756, October 31, 1968

"There is no double taxation where one tax is imposed by the state and the other is imposed by the
city."
S.M.O
FACTS: The City of Baguio passed an ordinance imposing a license fee on any person, entity or
corporation doing business in the City. The ordinance sourced its authority from RA No. 329, thereby
amending the city charter empowering it to fix the license fee and regulate businesses, trades and
occupations as may be established or practiced in the City. De Leon was assessed for P50 annual fee
it being shown that he was engaged in property rental and deriving income therefrom. The latter
assailed the validity of the ordinance arguing that it is ultra vires for there is no statury authority which
expressly grants the City of Baguio to levy such tax, and that there it imposed double taxation, and
violates the requirement of uniformity.

ISSUE: Are the contentions of the defendant-appellant tenable?

HELD: No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code
empowering the City Council not only to impose a license fee but to levy a tax for purposes of revenue,
thus the ordinance cannot be considered ultra vires for there is more than ample statury authority for
the enactment thereof.
Second, an argument against double taxation may not be invoked where one tax is imposed by the
state and the other is imposed by the city, so that where, as here, Congress has clearly expressed its
intention, the statute must be sustained even though double taxation results.
And third, violation of uniformity is out of place it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same
occupation, calling or activity by both the state and the political subdivisions thereof.

E. BAGATSING vs.
RAMIREZ 74 SCRA 306
G.R. No. L-41631 December 17, 1976 MARTIN,

Facts:
Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE REGULATING
THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE
RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF
AND FOR OTHER PURPOSES." The petitioner City Mayor, Ramon D. Bagatsing, approved the
ordinance. Respondent Federation of Manila Market Vendors, Inc. commenced a Civil Case before
the CFI by respondent Judge, seeking the declaration of nullity of Ordinance No. 7522 for the
reason that Respondent Judge rendered decision, declaring the nullity of Ordinance No. 7522 of the
City of Manila. Respondent Judge denied the motion. Hence petitioners brought the matter to the
Supreme Court through the a petition for review on certiorari.
Issue:
Whether the collection of market stall fees to a private corporation affects the public purpose of
the imposition thus constituting unlawful delegation.
Held:
..nor does the delegation of the collection of market stall fees to a private corporation affect the
public purpose of the imposition. The entrusting of the collection of the fees does not destroy the
public purpose of the ordinance. So long as the purpose is public, it does not matter whether the
agency through which the money is dispensed is public or private. The right to tax depends upon
the ultimate use, purpose and object for which the fund is raised. It is not dependent on the nature
or character of the person or corporation whose intermediate agency is to be used in applying it.
The people may be taxed for a public purpose, although it be under the direction of an individual
or private corporation. Judgment of lower court reversed.
S.M.O
2. Inherently legislative

Coverage, Object, Nature, Extent, Situs

à Delegation of power to tax violates the principle of separation of powers. Delegation is

allowed when expressly authorized by the Constitution.
à The power to tax is exclusively vested in the legislative body.

a. BOARD OF ASSESSMENT APPEALS OF LAGUNA vs. CTA, NWSA

8 SCRA 224
GR No. L-18125, May 31, 1963

"A tax on property of the Government, whether national or local, would merely have the effect of
taking money from one pocket to put it in another pocket."

FACTS: National Waterworks and Sewerage Authority (NWSA), a public corporation owned by the
Government of the Philippines as well as all property comprising waterworks and sewerage systems
placed under it, took over the Cabuyao-Sta. Rosa-Biñan Waterworks System in 1956. It was assessed
by the Provincial Assessor of Laguna, for purposes of real estate taxes, on the real properties owned
by Cabuyao Waterworks. The respondent protested claiming it is exempted from the payment of real
estate taxes in view of the nature and kind of said property and functions and activities of petitioner.
The petitioner denied the protest arguing that such real properties are subject to real estate tax because
although said properties belong to the Republic of the Philippines, the same holds it, not in its
governmental, political or sovereign capacity, but in a private, proprietary or patrimonial character,
which, allegedly, is not covered by the exemption contained in section 3(a) of Republic Act No. 470.

ISSUE: Are the real properties owned by the respondent public corporation subject to real estate tax?

HELD: No. Republic Act No. 470 makes no distinction between property held in a sovereign,
governmental or political capacity and those possessed in a private, proprietary or patrimonial
character. And where the law does not distinguish neither may we, unless there are facts and
circumstances clearly showing that the lawmaker intended the contrary, but no such facts and
circumstances have been brought to our attention. Indeed, the noun "property" and the verb "owned"
used in said section 3(a) strongly suggest that the object of exemption is considered more from the
view point of dominion, than from that of domain.
Moreover, taxes are financial burdens imposed for the purpose of raising revenues with which to
defray the cost of the operation of the Government, and a tax on property of the Government,
whether national or local, would merely have the effect of taking money from one pocket to put it in
another pocket. Hence, it would not serve, in the final analysis, the main purpose of taxation. What is
more, it would tend to defeat it, on account of the paper work, time and consequently, expenses it
would entail.

b. PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-

appellant, vs. MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL
MAYOR, ET AL., defendant appellees. G.R. No. L-31156, EN BANC, February 27,
1976, MARTIN, J.

The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter
of right to every independent government, without being expressly conferred by the people. It is a
S.M.O
power that is purely legislative and which the central legislative body cannot delegate either to
the executive or judicial department of the government without infringing upon the theory of
separation of powers. The exception, however, lies in the case of municipal corporations, to
which, said theory does not apply. Legislative powers may be delegated to local governments in
respect of matters of local concern. This is sanctioned by immemorial practice. By necessary
implication, the legislative power to create political corporations for purposes of local self-
government carries with it the power to confer on such local governmental agencies the power to
tax. Under the New Constitution, local governments are granted the autonomous authority to
create their own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local
government unit shall have the power to create its sources of revenue and to levy taxes, subject to
such limitations as may be provided by law." Withal, it cannot be said that Section 2 of Republic
Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local
governments the power of local taxation.

FACTS:

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines,
Inc., commenced a complaint with preliminary injunction before the Court of First Instance of
Leyte for that court to declare Section 2 of Republic Act No. 2264, otherwise known as the Local
Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare
Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void.

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which
state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the
production tax rates imposed therein are practically the same, and second, that on January 17,
1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager
of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter
of the provisions of said Ordinance No. 27, series of 1962.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962,
levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of
a centavo for every bottle of soft drink corked." For the purpose of computing the taxes due, the
person, firm, company or corporation producing soft drinks shall submit to the Municipal
Treasurer a monthly report, of the total number of bottles produced and corked during the month.

On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies
and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this
municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity." For the purpose of computing the taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report
of the total number of gallons produced or manufactured during the month.

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'

ISSUE:

Whether Section 2 of Republic Act No. 2264 is an undue delegation of power, confiscatory and
oppressive. (NO)

RULING:
S.M.O
The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter
of right to every independent government, without being expressly conferred by the people. It is a
power that is purely legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the theory of
separation of powers. The exception, however, lies in the case of municipal corporations, to which,
said theory does not apply. Legislative powers may be delegated to local governments in respect
of matters of local concern. This is sanctioned by immemorial practice. By necessary implication,
the legislative power to create political corporations for purposes of local self-government carries
with it the power to confer on such local governmental agencies the power to tax. Under the New
Constitution, local governments are granted the autonomous authority to create their own sources
of revenue and to levy taxes. Section 5, Article XI provides: "Each local government unit shall
have the power to create its sources of revenue and to levy taxes, subject to such limitations as
may be provided by law." Withal, it cannot be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the legislative power to enact and vest in local governments
the power of local taxation.

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense,
would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the
authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it
is said that the taxing power may be delegated to municipalities and the like, it is meant that there
may be delegated such measure of power to impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy
the State has not deemed wise to tax for more general purposes. This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be passed
over under the guise of the taxing power, except when the taking of the property is in the lawful
exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity
of taxation is observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds of taxes
notice and opportunity for hearing are provided. Due process is usually violated where the tax
imposed is for a private as distinguished from a public purpose; a tax is imposed on property
outside the State, i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in
assessing and collecting taxes. But, a tax does not violate the due process clause, as applied to a
particular taxpayer, although the purpose of the tax will result in an injury rather than a benefit to
such taxpayer. Due process does not require that the property subject to the tax or the amount of
tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount
of the tax and the manner in which it shall be apportioned are generally not necessary to due
process of law.

There is no validity to the assertion that the delegated authority can be declared unconstitutional
on the theory of double taxation. It must be observed that the delegating authority specifies the
limitations and enumerates the taxes over which local taxation may not be exercised. The reason
is that the State has exclusively reserved the same for its own prerogative. Moreover, double
taxation, in general, is not forbidden by our fundamental law, since We have not adopted as part
thereof the injunction against double taxation found in the Constitution of the United States and
some states of the Union. Double taxation becomes obnoxious only where the taxpayer is taxed
twice for the benefit of the same governmental entity or by the same jurisdiction for the same
purpose, but not in a case where one tax is imposed by the State and the other by the city or
municipality.

c. PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC. vs. CITY OF BUTUAN

S.M.O
[G.R. No. L-22814. August 28, 1968.]

FACTS:
Plaintiff Pepsi-Cola Bottling Company of the Philippines, Inc. seeks to recover the sums
paid by it to the City of Butuan and collected by the latter pursuant to its Municipal Ordinance No.
110, as amended by Municipal Ordinance No. 122, which plaintiff assails as null and void, and to
prevent the enforcement thereof.

Plaintiff maintains, among others, that the disputed ordinance is null and void because: (1)
it partakes of the nature of an import tax; (4) it is highly unjust and discriminatory; and (5) Section
2 of Republic Act No. 2264, upon the authority of which it was enacted, is an unconstitutional
delegation of legislative powers.

ISSUE:
Whether plaintiff is correct in maintaining that Ordinance No. 110, as amended by
Ordinance No. 122, is null and void.
.
HELD:
Yes, with respect to the first and fourth objections by plaintiff, but not to the last objection.

The general principle against delegation of legislative powers, in consequence of the theory
of separation of powers, is subject to one well-established exception, namely: legislative powers
may be delegated to local governments — to which said theory does not apply — in respect of
matters of local concern.

The first and the fourth objections merit serious consideration. Ordinance 110 of the City
of Butuan, as amended by Ordinance No. 122, imposes a tax of P0.10 per case of 24 bottles of soft
drinks or carbonated drinks only upon "any agent and/or consignee of any person, association,
partnership, company or corporation engaged in selling . . . soft drinks or carbonated drinks."
Viewed from this angle, the tax partakes of the nature of an import duty which is beyond
defendant's authority to impose by express provision of law. [Sec. 2(i), RA 2264] For, as a
consequence of such measure, merchants engaged in the sale thereof are not subject to the tax
unless they are agents and/or consignees of another dealer, who, in the very nature of things, must
be one engaged in business outside the City. Besides, the tax would not be applicable to such agent
and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every
month. When we consider, also that the tax "shall be based and computed from the cargo manifest
or bill of lading . . . showing the number of cases" — not sold — but received by the taxpayer, the
intention to limit the application of the ordinance to soft drinks brought into the city from outside
thereof becomes apparent.

D. OSMEÑA vs. ORBOS

220 SCRA 703
GR No. 99886, March 31, 1993

" To avoid the taint of unlawful delegation of the power to tax, there must be a standard which implies
that the legislature determines matter of principle and lays down fundamental policy."

FACTS: Senator John Osmeña assails the constitutionality of paragraph 1c of PD 1956, as amended
by EO 137, empowering the Energy Regulatory Board (ERB) to approve the increase of fuel prices
or impose additional amounts on petroleum products which proceeds shall accrue to the Oil Price
S.M.O
Stabilization Fund (OPSF) established for the reimbursement to ailing oil companies in the event of
sudden price increases. The petitioner avers that the collection on oil products establishments is an
undue and invalid delegation of legislative power to tax. Further, the petitioner points out that since a
'special fund' consists of monies collected through the taxing power of a State, such amounts belong
to the State, although the use thereof is limited to the special purpose/objective for which it was
created. It thus appears that the challenge posed by the petitioner is premised primarily on the view
that the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation
power of the State.

ISSUE: Is there an undue delegation of the legislative power of taxation?

HELD: None. It seems clear that while the funds collected may be referred to as taxes, they are
exacted in the exercise of the police power of the State. Moreover, that the OPSF as a special fund is
plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while
it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject
to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." With regard to the alleged undue delegation of
legislative power, the Court finds that the provision conferring the authority upon the ERB to impose
additional amounts on petroleum products provides a sufficient standard by which the authority must
be exercised. In addition to the general policy of the law to protect the local consumer by stabilizing
and subsidizing domestic pump rates, P.D. 1956 expressly authorizes the ERB to impose additional
amounts to augment the resources of the Fund.

e. VILLEGAS v. HIU CHIONG TSAI PAO HO

G.R. No. L-29646, November 10, 1978

FACTS:
On February 22, 1968, the Municipal Board of Manila passed City Ordinance No. 6537. The said city
ordinance was also signed by then Manila Mayor Antonio J. Villegas (Villegas).
Section 1 of the said city ordinance prohibits aliens from being employed or to engage or participate
in any position or occupation or business enumerated therein, whether permanent, temporary or
casual, without first securing an employment permit from the Mayor of Manila and paying the permit
fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries,
or in the technical assistance programs of both the Philippine Government and any foreign
government, and those working in their respective households, and members of religious orders or
congregations, sect or denomination, who are not paid monetarily or in kind.
Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in Manila, filed a petition with the CFI of
Manila to declare City Ordinance No. 6537 as null and void for being discriminatory and violative of
the rule of the uniformity in taxation.
The trial court declared City Ordinance No. 6537 null and void. Villegas filed the present petition.

ISSUE:
Whether or not City Ordinance No. 6537 is a tax or revenue measure.

RULING:
Yes. The contention that City Ordinance No. 6537 is not a purely tax or revenue measure because its
principal purpose is regulatory in nature has no merit. While it is true that the first part which requires
that the alien shall secure an employment permit from the Mayor involves the exercise of discretion
and judgment in the processing and approval or disapproval of applications for employment permits
and therefore is regulatory in character the second part which requires the payment of P50.00 as
employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting
S.M.O
P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the
ordinance is to raise money under the guise of regulation.

Exceptions: Under the Constitution, there are two provisions;

1. Tariff powers of the President (Art. VI, Sec. 28 (2)) – this is where the Congress may, by
law, authorize the Pres. To impose tariff rates, import and export qoutas, etc. (custom
duties), subject to limitations and guidelines as the Congress may impose, consistent with the
national devt’t program of the govt; The authority of the President to fix tariff rates, import
or export quotas, tonnage and wharfage dues or other duties and imposts

The Pres., upon recommendation of Nat’l Economic Dev’t. Authority (NEDA):

a.) Increase, reduce or remove existing protective tariff rates of import duty, but in no case
shall be higher than 100% ad valorem;
b.) Establish import quota or ban importation of any commodity as may be necessary; and
c.) Impose additional duty on all imports not exceeding 10% ad valorem. (Flexible Power
Clause enshrined in Sex. 1608 of R.A 10863, otherwise known as the Customs
Modernization and Tariff Act (CTMA)

Taxes covered by that constitutionally delegated power?

It made no mention about income tax, donor’s tax, estate tax, value-added tax. The taxes covered
are customs duties.

NOTE: When Congress tasks the President or his/her alter egos to impose safeguard measures
under the delineated conditions, the President or the alter egos may be properly deemed as agents
of Congress to perform an act that inherently belongs as a matter of right to the legislature. It is
basic agency law that the agent may not act beyond the specifically delegated powers or disregard
the restrictions imposed by the principal; Congress passed a law authorizing the President to
impose income tax on certain items of income.

2. Delegation to Local Government (Art. X, Sec. 5) – Each LGU shall have the power to create
its own sources of revenue, fees, charges, subject to such guidelines and limitation as the Congress
may provide consistent with the basic policy of local autonomy. Such taxes, fees and other
charges shall accrue exclusively to the local govt. It refers to the power of LGUs to create its own
sources of revenue and to levy taxes, fees and charges

3. Delegation to administrative agencies – When the delegation relates merely to administrative

implementation that may call for some degree of discretionary powers under sufficient standards
expressed by law or implied from the policy and purpose of the act.

NOTE: Technically, this does not amount to a delegation of the power to tax because the
questions which should be determined by Congress are already answered by Congress before the
tax law leaves Congress.

3. Territoriality – Since laws cease to operate beyond country’s jurisdictional limits, the taxing
power of a country is likewise limited to person and property within and subject to its JD. The
same rule applies to the taxing power of a territory. Within the territorial jurisdiction, the taxing
authority may determine the “place of taxation” or “tax situs.”
S.M.O
GR: The taxing power of a country is limited to persons and property within and subject to its
jurisdiction.

Reasons:

1. Taxation is an act of sovereignty which could only be exercised within a country’s

territorial limits.
2. This is based on the theory that taxes are paid for the protection and services provided by
the taxing authority which could not be provided outside the territorial boundaries of the
taxing State.

XPNs:

1.) Where tax laws operate outside territorial jurisdiction – i.e. Taxation of resident citizens
on their incomes derived abroad;
2.) Where tax laws do not operate within the territorial jurisdiction of the State.

a. When exempted by treaty obligations; or

b. When exempted by international comity.

RULES Observed in Fixing Tax Situs

a.) Poll/ capitation/ community tax: residence of the taxpayer (regardless of the source of
income or location of the prop. Of the taxpayer;
b.) Property Tax: (1) Real property – the state or country where it is located; (2)Personal
Property – wherever the thing was actually kept or located (mobilia sequuntur personam –
movables follows the person); (3)Domicile – the place where the person intend to make
one’s home and live there for indefinite time.
c.) Excise Tax: taxes imposed on the exercise of a right or privilege (see pg. 56-57 for criteria)

o Income Tax - The situs of income tax depends upon the nationality and residence
of the taxpayer. If the taxpayer is both a resident and a national of the Philippines,
the income is taxed upon sources derived from within and without the Philippines.
Otherwise, the taxpayer is taxed upon sources derived from within the Philippines
only.

CIR VS. BRITISH OVERSEAS AIRWAYS CORPORATION and CTA

TOPIC: Sale Of The Tickets Taxable As Income From Sources Within The Philippines.

FACTS: BOAC is a British Government-owned corporation organized and existing under the laws
of the United Kingdom. It is engaged in the international airline business. It did not carry passengers
or cargo to or from the Philippines, although during the period covered by the assessments, it
maintained a general sales agent in the Philip. — Wamer Barnes and Company, Ltd., and later Qantas
Airways — which was responsible for selling BOAC tickets covering passengers and cargoes.

It is admitted that BOAC had no landing rights for traffic purposes in the Philippines, and
was not granted a Certificate of public convenience, except for a nine-month period, partly in 1961
S.M.O
and partly in 1962, when it was granted a temporary landing permit .

Petitioner assessed BOAC for deficiency income taxes covering the years 1959 to 1963.
BOAC paid the assessment under protest.

CTA DECISION: The Tax Court held that the proceeds of sales of BOAC passage tickets in the
Philippines do not constitute BOAC income from Philippine sources "since no service of carriage of
passengers or freight was performed by BOAC within the Philippines" and, therefore, said income is
not subject to Philippine income tax.

RESPONDENT’S MAIN ARGUMENT: BOAC's service of transportation is performed outside

the Philippines, the income derived is from sources without the Philippines and, therefore, not taxable
under our income tax laws.

ISSUES: Whether the revenue derived by BOAC from sales of tickets in the Philippines for air
transportation, while having no landing rights here, constitute income of BOAC from Philippine
sources, and, accordingly, taxable.

HELD: YES. Sales of tickets in the Philippines is taxable.

The source of an income is the property, activity or service that produced the income. For the
source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity
within the Philippines. The absence of flight operations to and from the Philippines is not determinative
of the source of income or the site of income taxation.

In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income:

1. The tickets exchanged hands and payments for fares were also made in Philippine currency.
2. The site of the source of payments is the Philippines.
3. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the
protection accorded by the Philippine government.
4. In consideration of such protection, the flow of wealth should share the burden of supporting
the government.

The definition of gross income under section 32 of tax code is broad and comprehensive to
include proceeds from sales of transport documents.

NOTE: Pursuant to Presidential Decree No. 69, international carriers are now taxed of 2-½ per cent
on their cross Philippine billings.

d.) VAT: the place where the transaction is made.

o Destination Principle. It is a principle applied in value-added tax. It dictates that

value-added tax may be imposed on goods and services only in the country where
these are consumed.
o Cross Border Doctrine. The Cross Border Doctrine mandates that no VAT shall
be imposed to form part of the cost of the goods destined for consumption outside
the territorial border of the taxing authority. Hence, actual export of goods and
services from the Philippines to a foreign country must be free of VAT, while those
destined for use or consumption within the Philippines shall be imposed with 10%
VAT.
S.M.O
o What are export processing zones? What is the tax treatment on the sales of
goods or services within these export processing zones? Export processing zones
are to be managed as a separate customs territory from the rest of the Philippines
and, thus, for tax purposes, are effectively considered as foreign territory. For this
reason, sales by persons from the Philippine customs territory to those inside the
export processing zones are effectively zero-rated.

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION v. CIR

GR Nos. 141104 & 148763 June 8, 2007
Chico-Nazario, J.

DOCTRINE:
Export processing zones are to be managed as a separate customs territory from the rest of the
Philippines and, thus, for tax purposes, are effectively considered as foreign territory.

FACTS:
Both cases involved applications for tax refund of the input VAT by petitioner corporation
on its zero-rated sales in the taxable quarters of the years 1990 and 1992. The Court of Tax Appeals
and Court of Appeals denied the claims for failure to meet the requirements of Sec 2 of Revenue
Regulation No. 2-88 which provides that, sale of raw materials to export-oriented BOI-registered
enterprises whose export sales, under rules and regulations of the BOI, exceed 70% of the total annual
production, shall be subject to zero-rate.
Petitioner corporation assails the validity of said regulation contending that it imposes
additional requirements, not found in Sec 100(a) of the Tax Code of 1977. Also that, PASAR and
PHILPHOS to whom the sale were made are registered not only with BOI, but also with the then
Export Processing Zone Authority.
Under Sec. 100(a) of the Tax Code, Export Sales are subject to 0% VAT and “Export Sale”
means the sale and shipment of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported, or foreign currency denominates sales.
ISSUE:
Whether or not petitioner corporation is entitled to the refund of input VAT.
HELD:
YES, petitioner corporation is entitled to tax refund of input VAT. The Supreme Court held
that Sec 2 of Revenue Regulation No. 2-88 should not have been applied. PASAR and PHILPHOS,
in addition to being registered with BOI, were also registered with EPZA and located within an export-
processing zone. The transactions were considered export sale.
According to the Destination Principle, goods and services are taxed only in the
country where these are consumed. In connection with the said principle, the Cross Border
Doctrine mandates that no VAT shall be imposed to form part of the cost of the goods
destined for consumption outside the territorial border of the taxing authority. Hence, actual
export of goods and services from the Philippines to a foreign country must be free of VAT,
while those destined for use or consumption within the Philippines shall be imposed with
10% VAT(Now 12% under R.A. No 9337). Export processing zones are to be managed as a
separate customs territory from the rest of the Philippines and, thus, for tax purposes, are
effectively considered as foreign territory. For this reason, sales by persons from the
Philippine customs territory to those inside the export processing zones are already taxed as
exports.

4. International Comity
S.M.O
It refers to the respect accorded by nations to each other because they are sovereign equals.
Thus, the property or income of a foreign state may not be the subject of taxation by another State.

This is a limitation founded on reciprocity designed to maintain harmonious and productive

relationships among the various state. Under international comity, a state must recognize the
generally-accepted tenets of international law, among which are the priniciples of sovereign
equality among states and of their freedom from suit without their consent, that limits that authority
of a government to effectively impose taxes in a sovereign state and its instrumentalities, as well
as in its property held and activities undertaken in that capacity.

International comity as a limitation on the power to tax

The Constitution expressly adopted the generally accepted principles of international law as part
of the law of the land (Art. II, Sec. 2, 1987 Constitution)

Thus, a State must recognize such generally accepted tenets of international law that limit the
authority of the government to effectively impose taxes upon a sovereign State and its
instrumentalities.

Reasons:

1. Par in parem non habet imperium. As between equals there is no sovereign (Doctrine of
Sovereign Equality).
2. The concept that when a foreign sovereign enters the territorial jurisdiction of another, it
does not subject itself to the jurisdiction of the other.
3. The rule of international law that a foreign government may not be sued without its consent
so that it is useless to impose a tax which could not be collected.

Principle of Pacta Sunt Servanda in Taxation

Observance of any treaty obligation binding upon the government of the Philippines is
anchored on the constitutional provision that the Philippines “adopts the generally accepted
principles of international law as part of the law of the land (Art. II, Sec. 2, 1987 Constitution).
Pacta sunt servanda is a fundamental international law principle that requires agreeing parties to
comply with their treaty obligations in good faith. Hence, the application of the provisions of the
NIRC must be subject to the provisions of tax treaties entered into by the Philippines with foreign
countries.

Constitutional Basis: Article 2, Section 2 of the Constitution states that the Philippines adopts
the generally accepted principles of international law as the law of the land. Such generally
accepted principle pertains to the sovereign equality of nations. Neither can we impose real
property tax on the foreign embassies as these are extension of territories of sovereign states.

Can the income of the Ambassador of the United States derived from sources within the
Philippines be subject to income tax? NO, because it is one of the inherent limitations –
international comity. Subjecting their income to income tax will violate the internationally
accepted principle of sovereign equality among nations.

5. Tax exemption of the government

S.M.O
GR: The government is exempt from tax.

Reason: Otherwise, we would be “taking money from one pocket and putting it in another” (Board
of Assessment Appeals of Laguna v. CTA, G.R. No. L- 18125, May 31, 1963).

XPN: When it chooses to tax itself. Nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing government functions may be subject
to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can
doubt its wisdom (MCIAA v. Marcos, G.R. No. 120082, September 11, 1996).

Government may tax itself . Since sovereignty is absolute and taxation is an act of high
sovereignty, the State if so minded could tax itself, including its political subdivisions (Maceda v.
Macaraig, G.R. No. 88291, June 8, 1993).

National government is exempt from local taxation. If the taxing authority is the LGU, R.A.
7160 expressly prohibits LGUs from levying tax on the National Government, its agencies and
instrumentalities and other LGUs. In Manila International Airport Authority v. CA, G.R. No.
155650 (2006) MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by
local governments. Being an instrumentality of the national government, it is exempt from local
taxation. Also, the real properties of MIAA are owned by the Republic of the Philippines and thus
exempt from real estate tax.

Agency of the government. It refers to any of the various units of the government, including a
department, bureau, office, instrumentality, or government-owned or controlled corporation, or a
local government or a distinct unit therein.

Taxability of agencies of government

1.) Performing governmental functions: tax exempt unless expressly taxed; and
2.) Performing proprietary functions: subject to tax unless expressly exempted

Instrumentality of the government. It refers to any agency of national government, not integrated
within the department framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through charter.

Taxability of instrumentalities of government. A government instrumentality falls under

Section 133(o) of the LGC, which states:

“SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following: xxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units.”

5 characteristics of an instrumentality of the national government under Sec. 2 (10) of the

1987 Administrative Code:

1. They are not integrated within the department network;

S.M.O
2. They are vested with special functions or jurisdiction by law;
3. They are endowed with some if not all corporate powers;
4. They are administering special fund;
5. They are enjoying operational autonomy, usually through a charter.

Is PEZA a government instrumentality or a GOCC? Is it exempt from real property

taxation?

PEZA is an instrumentality of the government. It is not integrated within the department

framework but is an agency attached to the Department of Trade and Industry. PEZA is also vested
with special functions or jurisdiction by law. Congress created the PEZA to operate, administer,
manage and develop special economic zones in the Philippines. Although a body corporate vested
with some corporate powers, the PEZA is not a GOCC that is taxable for real property taxes
because it was not organized as a stock or non-stock corporation. Being an instrumentality of the
national government, it cannot be taxed by LGUs (PEZA v. Lapu-lapu City, 742 SCRA 524).

Government-owned and controlled corporation (GOCC). It refers to to any agency:

1. organized as a stock or non-stock corporation,

2. vested with functions relating to public needs whether governmental or proprietary in
nature, and
3. owned by the Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent
of its capital stock

NOTE: Government instrumentality may include a GOCC and there may be “instrumentality”
that does not qualify as GOCC.

Taxability of GOCCs

GOCCs perform proprietary functions; hence they are subject to taxation. However, certain
corporations have been granted exemption under Section 27(c) of R.A. 8424 as amended by R.A.
9337, which took effect on July 1, 2005, to wit:

1. Government Service Insurance System (GSIS)

2. Social Security System (SSS)
3. Philippine Health Insurance Corporation (PHIC)
4. Philippine Charity Sweepstakes Office (PCSO)

EXEMPTION FROM TAXATION OF GOVERNMENT AGENCIES AND

INSTRUMENTALITIES: 16 Exempt Instrumentalities of the National Government. The
following instrumentalities are exempt from tax:

1. Philippine Economic Zone Authority;

2. Government Service Insurance System;
3. Bangko Sentral ng Pilipinas;
4. Mactan-Cebu International Airport Authority;
5. Philippine Ports Authority;
6. San Fernando Port Authority;
7. University of the Philippines;
S.M.O
8. Philippine Fisheries Development Authority;
9. Philippine Rice Research Institute;
10. Cagayan De Oro Port Authority;
11. Cebu Port Authority;
12. Manila International Airport Authority;
13. Philippine Reclamation Authority;
14. Laguna Lake Development Authority;
15. Bases Conversion Development Authority;
16. Philippine National Railways;

. LIGHT RAIL TRANSIT AUTHORITY vs. CENTRAL BOARD OF ASSESSMENT

APPEALS, BOARD OF ASSESSMENT APPEALS OF MANILA and the CITY
ASSESSOR OF MANILA
G.R. No. 127316 ; October 12, 2000
Ponente: PANGANIBAN, J.:
FACTS:
The LRTA is a GOCC created and organized under EO No. 603 primarily responsible for the
construction, operation, maintenance and/or lease of light rail transit system in the Philippines,
giving due regard to the reasonable requirements of the public transportation of the country.
By reason of EO 603, LRTA acquired real properties, constructed structural improvements, such
as buildings, carriageways, passenger terminal stations, and installed various kinds of machinery
and equipment and facilities for the purpose of its operations.
Respondent-Appellee City Assessor of Manila assessed the real properties of LRTA, consisting of
lands, buildings, carriageways and passenger terminal stations, machinery and equipment which
he considered real property under the Real Property Tax Code.
That LRTA paid its real property taxes on all its real property holdings, except the carriageways
and passenger terminal stations including the land where it is constructed on the ground that the
same are not real properties under the Real Property Tax Code, and if the same are real propert[y],
these are for public use/purpose, therefore, exempt from realty taxation, which claim was denied
by the Respondent-Appellee City Assessor of Manila.
The CA held that petitioner's carriageways and passenger terminal stations constituted real
property or improvements thereon and, as such, were taxable under the Real Property Tax Code.

ISSUE:
Whether petitioner's carriageways and passenger terminal stations are subject to real property
taxes.

RULING:
Yes.
Under the Real Property Tax Code, real property "owned by the Republic of the Philippines or any
of its political subdivisions and any government-owned or controlled corporation so exempt by its
charter, provided, however, that this exemption shall not apply to real property of the abovenamed
entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable
person."
Executive Order No. 603, the charter of petitioner, does not provide for any real estate tax
exemption in its favor. Its exemption is limited to direct and indirect taxes, duties or fees in
connection with the importation of equipment not locally available.
Even granting that the national government indeed owns the carriageways and terminal stations,
the exemption would not apply because their beneficial use has been granted to petitioner, a taxable
entity.
S.M.O
Taxation is the rule and exemption is the exception. Any claim for tax exemption is strictly
construed against the claimant. LRTA has not shown its eligibility for exemption; hence, it is
subject to the tax.

. MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional
Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor
HON. TOMAS R. OSMEÑA, and EUSTAQUIO B. CESA,respondents. DAVIDE, JR., J.:
G.R. No. 120082 September 11, 1996

For review under Rule 45 of the Rules of Court on a pure question of law are the decision of 22
March 1995 1 of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing the petition
for declaratory relief in Civil Case No. CEB- 16900 entitled "Mactan Cebu International Airport
Authority vs. City of Cebu", and its order of 4, May 1995 2 denying the motion to reconsider the
decision.
FACTS:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of
Republic Act No. 6958, mandated to "principally undertake the economical, efficient and
effective control, management and supervision of the Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu City, . . . and such other Airports as may be
established in the Province of Cebu . . . (Sec. 3, RA 6958). Since the time of its creation, petitioner
MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with
Section 14 of its Charter.
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the
Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land
belonging to the petitioner , in the total amount of P2,229,078.79.Petitioner objected to such
demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14
of RA 6958 which exempt it from payment of realty taxes. It was also asserted that it is an
instrumentality of the government performing governmental functions, citing section 133 of the
Local Government Code of 1991 which puts limitations on the taxing powers of local government
units.

Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been
withdrawn by virtue of Sections 193 and 234 of the Local Governmental Code that took effect
on January 1, 1992.Petitioner was compelled to pay its tax account "under protest" and thereafter
filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu, Branch. MCIAA
basically contended that the taxing powers of local government units do not extend to the levy
of taxes or fees of any kind on an instrumentality of the national government. Petitioner insisted
that while it is indeed a government-owned corporation, it nonetheless stands on the same footing
as an agency or instrumentality of the national government by the very nature of its powers and
S.M.O
functions.

Respondent City, however, asserted that MACIAA is not an instrumentality of the government
but merely a government-owned corporation performing proprietary functions As such, all
exemptions previously granted to it were deemed withdrawn by operation of law, as provided
under Sections 193 and 234 of the Local Government Code when it took effect on January 1,
1992. The trial court dismissed the petition and ruled that the New Local Government Code
of 1991 or RA 7160 provides the express cancellation and withdrawal of exemption of taxes by
government owned and controlled corporation per Sections.
With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption
provided for in RA 6958 creating petitioner had been expressly repealed by the provisions of
the New Local Government Code of 1991. Petitioner’s motion for reconsideration was denied
by the trial court, the petitioner then filed the instant petition.

ISSUE:
W/N Petitioner is liable to is exempted from the payment of realty taxes.

HELD: MCIAA is not exempt from payment of realty taxes. There can be no question that under
Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by
the National Government or any of its political subdivisions, agencies, and instrumentalities.
Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption may
thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where
the exemption was granted to private parties based on material consideration of a mutual nature,
which then becomes contractual and is thus covered by the non-impairment clause of the
Constitution.
The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise
by local government units of their power to tax, the scope thereof or its limitations, and the
exemption from taxation.
Reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as
laid down in Section 133 the taxing powers of local government units cannot extend to the levy
of inter alia, "taxes, fees, and charges of any kind of the National Government, its agencies and
instrumentalties, and local government units"; however, pursuant to Section 232, provinces,
cities, municipalities in the Metropolitan Manila Area may impose the real property tax except
on, inter alia, "real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial used thereof has been granted, for consideration or
otherwise, to a taxable person", as provided in item
(a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons,
including government-owned and controlled corporations, Section 193 of the LGC prescribes the
general rule, viz., they are withdrawn upon the effectivity of the LGC.
Note that as a reproduced in Section 234(a), the phrase "and any government- owned or
controlled corporation so exempt by its charter" was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to limit further tax exemption privileges,
specially in light of the general provision on withdrawal of exemption from payment of real
S.M.O
property taxes in the last paragraph of property taxes in the last paragraph of Section 234. These
policy considerations are consistent with the State policy to ensure autonomy to local
governments and the objective of the LGC that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals. The power to tax is the most
effective instrument to raise needed revenues to finance and support myriad activities of local
government units for the delivery of basic services essential to the promotion of the general
welfare and the enhancement of peace, progress, and prosperity of the people. It may also be
relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted
to government-owned and controlled corporations and all other units of government were that
such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly
situated enterprises, and there was a need for this entities to share in the requirements of the
development, fiscal or otherwise, by paying the taxes and other charges due from them.
The petitioner cannot claim that it was never a "taxable person" under its Charter. It was only
exempted from the payment of real property taxes. The grant of the privilege only in respect of
this tax is conclusive proof of the legislative intent to make it a taxable person subject to all
taxes, except real property tax.
Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of
the government performing governmental functions may be subject to tax. Where it is done
precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision and order
of the Regional Trial Court of Cebu, Branch 20, in Civil Case No.
CEB-16900 are AFFIRMED.
S.M.O
.MIAA vs. CA and City of Paranaque
G.R. No. 155650, July 20, 2006

FACTS:
The Manila International Airport Authority (MIAA) operates the NAIA complex in Parañaque City under
its charter. They operate and administer the land, improvements and equipment within the NAIA Complex.
In March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061 to the
effect that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to GOCCs
under Section 21of it’s Charter. Thus, MIAA paid some of the real estate tax already due, 4.2 million out of the 625
million total.
The City Treasurer subsequently issued notices of levy and warrants of levy on the airport lands and
buildings, this prompted MIAA to seek clarification of the OGCC opinion, where OGCC pointed out that Sec. 206
of the LGC requires persons exempt from real estate tax to show proof of exemption. According to the OGCC, Sec.
21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax. MIAA, thus, filed a petition with the
Court of Appeals seeking to restrain the City of Parañaque from imposing real estate tax on, levying against, and
auctioning for public sale the airport lands and buildings, but this was dismissed for having been filed out of time.
MIAA contends that the government cannot tax itself stating that since the airport lands and buildings, being
devoted to public use and public service, are owned by the Republic of the Philippines. The City of Paranaque on
the other hand states that MIAA is a GOCC thus the tax exemption granted to them by their charter was already
withdrawn by the passage of the LGC.
ISSUE:
1. Whether MIAA is a GOCC
2. Whether the properties of MIAA are considered that of public property
3. Whether MIAA is exempt from taxes

HELD:
1. No, MIAA is not a GOCC but an instrumentality of the Government.

A GOCC must be “organized as a stock or non-stock corporation”. MIAA is not a stock corporation as it
has no capital stock divided into shares and MIAA has no stockholders or voting shares. A stock corporation
as one whose "capital stock is divided into shares and authorized to distribute to the holders of such shares
dividends." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting
shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have members. Even if we assume that the
Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation.
The MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National
Treasury. This prevents MIAA from qualifying as a non-stock corporation.

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. When the law vests in a government instrumentality corporate powers, the instrumentality does
not become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also corporate
powers. Moreover, The Administrative Code allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government. Such real properties remain owned by the
Republic and continue to be exempt from real estate tax.

2. The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the
State or the Republic of the Philippines. Art. 420 Sec. 1 “Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar
S.M.O
According to the LGC Sec. 234(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person.

Section 133(o) of the LGC, prohibits local governments from imposing "[t]axes, fees or charges of any kind
on the National Government, its agencies and instrumentalities." The Republic may grant the beneficial use
of its real property to an agency or instrumentality of the national government. This happens when title of
the real property is transferred to an agency or instrumentality even as the Republic remains the owner of
the real property. Such arrangement does not result in the loss of the tax exemption.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt
from real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration
to a taxable person and therefore such land area is subject to real estate tax.

a. The Standard Oil Company of New York vs Posadas

No. 34029. February 26, 1931
Facts
Standard is a foreign corporation duly authorized to do business in the Philippines. They delivered in the
Philippines for the use of US Army, fuel oil and asphalt. Collector of Internal Revenue demanded a tax of one and one-
half per cent upon the value of the merchandise by virtue of section 1459 of the Administrative Code and Act No. 3243
of the Philippine Legislature. During the same period Standard delivered fuel to US Navy to be paid in New York, and
which contract provided that all internal revenue taxes and charges under the laws of the Philippine Islands were to be
assumed and paid by the United States Navy. Collector collected sales tax which was paid by Standard under protest.
Standard sue for refund.

Issue
Whether Philippine tax on sales of merchandise made in the Philippines to the United States Army and The
United States Navy is Legal.

Ruling
No.
Sales made in the Philippines to the United States Army and the United States Navy are made to instrumentalities
of the United States Government and, therefore, are not subject to tax by the Philippine Government.
It would be absurd to think that a derivative sovereignty like the Government of the Philippine Islands, could tax
the instrumentalities of the very Government which brought it into existence. If a sovereign State of the American
Union cannot abridge or restrict the activities of the United States Government, much less can a creature of that
Government, as the Philippine Government is, do so.

b. National Development Company vs. Cebu City

G.R. No. 51593.November 5, 1992
Facts
National Development Company (NDC) is a GOCC authorized to engage in commercial, industrial, mining,
agricultural and other enterprises necessary or contributory to economic development or important to public interest.
It also operates subsidiary corporations one of which is National Warehousing Corporation (NWC). On August 10,
1939, the President issued Proclamation No. 430 reserving Block no. 4, Reclamation Area No. 4, of Cebu City for
warehousing purposes under the administration of NWC. Subsequently, in 1940, a warehouse with a floor area of 1,940
square meters more or less, was constructed thereon. In 1947, EO 93dissolved NWC with NDC taking over its assets
and functions. In 1948, Cebu City assessed and collected from NDC real estate taxes on the land and the warehouse
thereon. By the first quarter of 1970, a total of P100,316.31 was paid by NDC 11 of which only P3,895.06 was under
protest. NDC asked for a full refund contending that the land and the warehouse belonged to the Republic and therefore
exempt from taxation. The CFI ordered Cebu City to refund to NDC the real estate taxes paid by it.

Issue
Whether a public land reserved by the President for warehousing purposes in favor of a government-owned or
S.M.O
In this case, what appears to have been ceded to NDC was merely the administration of the property while the
government retains ownership of what has been declared for warehousing purposes. The land remains “absolute
property of the government. The government does not part with its title by reserving them (lands), but simply gives
notice to all the world that it desires them for a certain purpose.” As its title remains with the Republic, the reserved
land is clearly covered by tax exemption. (Stopped here)

c. ESSO STANDARD EASTERN, INC. vs. ACTING COMMISSIONER OF CUSTOMS

18 SCRA 488
GR No. L-21841, October 28, 1966

"Exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority."

FACTS: Petitioner, engaged in the industry of processing gasoline, oils etc., claims for the refund of special import taxes
paid pursuant to the provision of RA 1394 which imposed a special import tax "on all goods, articles or products
imported or brought into the Philippines." Exempt from this tax, by express mandate of Section 6 of the same law are
"machinery, equipment, accessories, and spare parts, for the use of industries, miners, mining enterprises, planters and
farmers". Petitioner argued that the importation it made of gas pumps used by their gasoline station operators should
fall under such exemptions, being directly used in its industry. The Collector of Customs of Manila rejected the claim,
and so as the Court on Tax Appeals. The CTA noted that the pumps imported were not used in the processing of
gasoline and other oil products but by the gasoline stations, owned by the petitioner, for pumping out, from
underground barrels, gasoline sold on retail to customers.

ISSUE: Is the contention of the petitioner tenable? Does the subject imports fall into the exemptions?

HELD: No. The contention runs smack against the familiar rules that exemption from taxation is not favored, and that
exemptions in tax statutes are never presumed. Which are but statements in adherence to the ancient rule that
exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority. Tested by this precept, we cannot indulge in expansive construction and write into the law an exemption not
therein set forth. Rather, we go by the reasonable assumption that where the State has granted in express terms certain
exemptions, those are the exemptions to be considered, and no more. Since the law states that, to be tax-exempt,
equipment and spare parts should be "for the use of industries", the coverage herein should not be enlarged to include
equipment and spare parts for use in dispensing gasoline at retail.

B. Constitutional Limitations

1. Due Process of Law

2. Equal Protection of the Law
3. Uniformity of Taxation
4. Progressive Taxation
5. Non- Impairment Clause
6. Non-Imprisonment for Non-Payment of Poll Tax
7. Bills to Originate from the House of Representatives
8. Veto Power of the President
9. President’s Power to Tax (Tariff Rates)
10. Taxation and Freedom of the Press
11. Taxation and Freedom of Religion
12. Tax Exemption of Properties Used for Religious, Charitable, and Educational purposes
13. Tax Exemptions Granted to Non-Stock, Non-Profit Educational Institutions
14. Appropriation of Public Money
15. Grant of Tax Exemptions
16. Local Taxation
17. Special Fund
18. Supreme Court’s Jurisdiction Over Tax Cases

PRESS-LED-CUPP-VPN-TB-PG
P-rogressive Taxation L-ocal Taxation C-ontracts V-eto T- Tariff rates(P
S.M.O
Petitioners are domestic corporations and proprietors operating pharmacies in the Philippines. Public respondents, on
the other hand, include the DSWD, DOH, DOF (Dept. of Finance), DOJ, and the DILG, specifically tasked to do the
following: monitor the drugstores’ compliance with the law; promulgate the implementing rules and regulations for the
effective implementation of the law; and prosecute and revoke the licenses of erring drugstore establishments.
On 2004, GMA signed into law R.A. No. 9257, amending R.A. No. 7432 otherwise known as the “Expanded Senior
Citizens Act of 2003.” Sec. 4(a) of the Act states that:
SEC. 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of services in hotels and similar
lodging establishments, restaurants and recreation centers, and purchase of medicines in all establishments for the exclusive use or
enjoyment of senior citizens, including funeral and burial services for the death of senior citizens;
Petitioners assail the said Act because it allegedly constitutes deprivation of private property and compelling drugstore
owners and establishments to grant the discount will result in a loss of profit and capital. (allegedly violates sec. 1 of Bill
of Rights)
-- Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens Act based on the following
grounds:
• The law is confiscatory because it infringes Art. III, Sec. 9 of the Constitution which provides that private
property shall not be taken for public use without just compensation;
• It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution which states that “no
person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied
of the equal protection of the laws;” and
• The 20% discount on medicines violates the constitutional guarantee in Article XIII, Section 11 that makes
“essential goods, health and other social services available to all people at affordable cost.”

Issue: Whether or not Sec 4 (a) of the Expanded Senior Citizens Act of 2003 is Constitutional

Held: YES.
The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for
its object. The State, in promoting the health and welfare of a special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government program. The Senior Citizens Act was enacted primarily
to maximize the contribution of senior citizens to nation-building, and to grant benefits and privileges to them for their
improvement and well-being as the State considers them an integral part of our society.---RATIO
Police power has been described as “the most essential, insistent and the least limitable of powers, extending as it does
to all the great public needs.” For this reason, when the conditions so demand as determined by the legislature, property
rights must bow to the primacy of police power because property rights, though sheltered by due process, must yield to
general welfare. Police power as an attribute to promote the common good would be diluted (means weaker)
considerably if on the mere plea of petitioners that they will suffer loss of earnings and capital, the questioned provision
is invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory effect of the provision in
question, there is no basis for its nullification in view of the presumption of validity which every law has in its favor.
The Court is not oblivious (unaware) of the retail side of the pharmaceutical industry and the competitive pricing
component of the business. While the Constitution protects property rights, petitioners must accept the realities of
business and the State, in the exercise of police power, can intervene in the operations of a business which may result
in an impairment of property rights in the process.
b. REYES v. ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322

FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as dwelling units
by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the Rental Freezing Law was
passed prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units where rentals do not
exceed three hundred pesos (P300.00), so that the Reyeses were precluded from raising the rents and from ejecting the
S.M.O
HELD: No. The taxing power has the authority to make a reasonable and natural classification for purposes of taxation
but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no
support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances
or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred
and the liabilities imposed.
Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the same
government by the imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their
properties.

c. CIR vs. CA 261 SCRA 262, G.R. No. 119761, August 29, 1996
Facts:
RA 7654 (An Act Revising The Excise Tax Base, Allocating A Portion Of The Incremental Revenue
Collected For The Emergency Employment Program For Certain Workers, Amending For The Purpose Sec.
142 Of The National Internal Revenue Code) was enacted by Congress on June 10, 1993 and took effect July 3,
1993. It amended partly Sec. 142 (c) of the NIRC1. Fortune Tobacco manufactured the following cigarette brands:
Hope, More and Champion. Prior to RA 7654, these 3 brands were considered local brands subjected to an ad
valorem tax of 20 to 45%. Applying the amendment and nothing else, the 3 brands should fall under Sec 142 (c) (2)
NIRC and be taxed at 20 to 45%.

However, on July 1, 1993, petitioner Commissioner of Internal Revenue issued Revenue Memorandum Circular37-93
which reclassified the 3 brands as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem
tax. The reclassification was before RA 7654 took effect.

In effect, the memo circular subjected the 3 brands to the provisions of Sec 142 (c) (1) NIRC imposing upon these
brands a rate of 55% instead of just 20 to 45% under Sec 142 (c) (2) NIRC. There was no notice and hearing. CIR
argued that the memo circular was merely an interpretative ruling of the BIR which did not require notice and hearing.

Issue:
Whether or not RMC 37-93 was valid and enforceable.

Held:
No; lack of notice and hearing violated due process required for promulgated rules. Moreover, it infringed on uniformity
of taxation / equal protection since other local cigarettes bearing foreign brands had not been included within the scope
of the memo circular.

Contrary to petitioner’s contention, the memo was not a mere interpretative rule but a legislative rule in the nature of
subordinate legislation, designed to implement a primary legislation by providing the details thereof. Promulgated
legislative rules must be published.
On the other hand, interpretative rules only provide guidelines to the law which the administrative agency is in charge
of enforcing.

BIR, in reclassifying the 3 brands and raising their applicable tax rate, did not simply interpret RA 7654 but legislated
under its quasi-legislative authority.

BELLOSILLO separate opinion: the administrative issuance was not quasi-legislative but quasi-judicial. Due process
should still be observed of course but use Ang Tibay v. CIR.

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to make rules. The
necessity for vesting administrative agencies with this power stems from the impracticability of the lawmakers providing
general regulations for various and varying details pertinent to a particular legislation.

The rules that administrative agencies may promulgate may either be legislative or interpretative. The former is a form
of subordinate legislation whereby the administrative agency is acting in a legislative capacity, supplementing the statute,
S.M.O
2. Equal Protection of the Law
a. GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It did not bear the
special anti-TB stamp required by the RA 1635. It was returned to the petitioner. Petitioner now assails the
constitutionality of the statute claiming that RA 1635 otherwise known as the Anti-TB Stamp law is violative of the
equal protection clause because it constitutes mail users into a class for the purpose of the tax while leaving untaxed the
rest of the population and that even among postal patrons the statute discriminatorily grants exemptions. The law in
question requires an additional 5 centavo stamp for every mail being posted, and no mail shall be delivered unless bearing
the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal protection clause?

HELD:
No. It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions.
This power has aptly been described as "of wide range and flexibility." Indeed, it is said that in the field of taxation,
more than in other areas, the legislature possesses the greatest freedom in classification. The reason for this is that
traditionally, classification has been a device for fitting tax programs to local needs and usages in order to achieve an
equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on administrative
convenience. Tax exemptions have never been thought of as raising revenues under the equal protection clause.

b. Eastern Theatrical Co. v Alfonso

Perfecto, J.
1949

Facts
• The Municipal Board of the City of Manila enacted Ordinance No. 2958 which imposes a fee on the price of
every admission ticket sold by theaters and other similar amusement establishments. The fees imposed are
graduated according to the price of the ticket sold.
• Twelve corporations (Petitioners) engaged in the motion picture business instituted a complaint in the CFI to
impugn the validity of the ordinance.
• CFI upheld the validity of the ordinance and held that:
o Under Sec 2444(m) of the Revised Administrative Code (RAC), the City of Manila had the power to
enact the ordinance.
o Sec 2444(m) of the RAC was not repealed by the NIRC nor the power granted by it withdrawn.
o Ordinance did not violate the principle of equality and uniformity of taxation.

Issues and Arguments:

1. WON ordinance was enacted beyond the charter powers of the City of Manila?
• Petitioners: Sec 2444(m) of the Revised Administrative Code, which grants to the City the power to
regulate theaters, confers only the power to tax on business but not on amusement.
2. WON Sec 2444(m) of the RAC has been impliedly repealed by the NIRC?
• Petitioners: Since the NIRC was passed later the RAC and since both taxing powers cover the same field
of legislation, Sec 2444(m) of the RAC must have been repealed by the NIRC and consequently, the
power to regulate theaters granted to the City was withdrawn.
3. WON the ordinance violates the principle of equality and uniformity of taxation enjoined by the
Constitution?
• Petitioners: Ordinance does not tax other kinds of amusements (e.g. race tracks, cockpits, cabarets,
concert halls)
S.M.O
c. Manila Race Horse v. Dela Fuente

Facts:

This action was instituted for a declaratory relief by the Manila Race Horses Trainers Association, Inc., a non-stock
corporation duly organized and existing under and by virtue of the laws of the Philippines, who allege that they are
owners of boarding stables for race horses and that their rights as such are affected by Ordinance No. 3065 of the City
of Manila approved on July 1, 1947. They made the Mayor of Manila defendant and prayed that said ordinance be
declared invalid as violative of the Philippine Constitution.

The case was submitted on the pleadings, and the decision was that the ordinance in question "is constitutional and
valid and has been enacted in accordance with the powers of the Municipal Board granted by the Charter of the City of
Manila."

Issue: WON the ordinance makes an arbitrary classification--- thus being violative of the constitution.

Held:

In taxing only boarding stables for race horses, we do not believe that the ordinance, makes arbitrary classification. In
the case of Eastern Theatrical Co. Inc., vs. Alfonso, it was said there is equality and uniformity in taxation if all articles
or kinds of property of the same class are taxed at the same rate.

Thus, it was held in that case, that "the fact that some places of amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of
amusements or places of amusement are taxed, is not argument at all against the equality and uniformity of tax
imposition." Applying this criterion to the present case, there would be discrimination if some boarding stables of the
same class used for the same number of horses were not taxed or were made to pay less or more than others.

From the viewpoint of economics and public policy, the taxing of boarding stables for race horses to the exclusion of
boarding stables for horses dedicated to other purposes is not indefensible. The owners of boarding stables for race
horses and, for that matter, the race horse owners themselves, who in the scheme of shifting may carry the taxation
burden, are a class by themselves and appropriately taxed where owners of other kinds of horses are taxed less or not
at all, considering that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits
received by the taxpayer and by the public from the business or property taxed. Race horses are devoted to gambling if
legalized, their owners derive fat income and the public hardly any profit from horse racing, and this business demands
relatively heavy police supervision.

Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical
dictates of justice and equity and is not discriminatory within the meaning of the Constitution.

d. PUNSALAN v. MUN. BOARD OF CITY OF MANILA

GR No. L-23645, October 29, 1968
95 PHIL 46

FACTS: The plaintiffs--two lawyers, medical practitioner, a dental surgeon, a CPA, and a pharmacist--sought the
annulment of Ordinance No.3398 of the City of Manila which imposes a municipal occupation tax on persons exercising
various professions in the city and penalizes non-payment of the tax, contending in substance that this ordinance and
the law authorizing it constitute class legislation, are unjust and oppressive, and authorize what amounts to double
taxation. The burden of plaintiffs' complaint is not that the professions to which they respectively belong have been
singled out for the imposition of this municipal occupation tax, but that while the law has authorized the City of Manila
to impose the said tax, it has withheld that authority from other chartered cities, not to mention municipalities.

ISSUE: Does the law constitute a class legislation? Is it for the Court to determine which political unit should impose
taxes and which should not?
S.M.O

Facts: Petitioners, who are professionals in the city, assail Ordinance No. 3398 together with the law authorizing it
(Section 18 of the Revised Charter of the City of Manila). The ordinance imposes a municipal occupation tax on persons
exercising various professions in the city and penalizes non-payment of the same. The law authorizing said ordinance
empowers the Municipal Board of the city to impose a municipal occupation tax on persons engaged in various
professions. Petitioners, having already paid their occupation tax under section 201 of the National Internal Revenue
Code, paid the tax under protest as imposed by Ordinance No. 3398. The lower court declared the ordinance invalid
and affirmed the validity of the law authorizing it.

Issue: Whether or Not the ordinance and law authorizing it constitute class legislation, and authorize what amounts to
double taxation.

Held: The Legislature may, in its discretion, select what occupations shall be taxed, and in its discretion may tax all, or
select classes of occupation for taxation, and leave others untaxed. It is not for the courts to judge which cities or
municipalities should be empowered to impose occupation taxes aside from that imposed by the National Government.
That matter is within the domain of political departments. The argument against double taxation may not be invoked if
one tax is imposed by the state and the other is imposed by the city. It is widely recognized that there is nothing inherently
terrible in the requirement that taxes be exacted with respect to the same occupation by both the state and the political
subdivisions thereof. Judgment of the lower court is reversed with regards to the ordinance and affirmed as to the law
authorizing it.

e. ASSOCIATION OF CUSTOM BROKERS, INC. vs. MUNICIPAL BOARD

G.R. No. L-4376 May 22, 1953

FACTS:
The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor
vehicles in the City of Manila challenge the validity Ordinance No. 3379 on the ground that (1) while it levies a so-called
property tax it is in reality a license tax which is beyond the power of the Municipal Board of the City of Manila; (2) said
ordinance offends against the rule of uniformity of taxation; and (3) it constitutes double taxation.
The respondents contend on their part that the challenged ordinance imposes a property tax which is within the power
of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic Act No. 409](Revised Charter of
the City of Manila), and that the tax in question does not violate the rule of uniformity of taxation, nor does it constitute
double taxation.

ISSUE:
Whether or not the ordinance is null and void

RULING:
The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the ordinance
exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor
vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered
in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public
highways. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

OTHER VERSION: ASSOCIATION OF CUSTOMS BROKERS, INC and MANLAPIT v. MUNICIPAL

BOARD OF MANILA
Topic: local taxation – fundamental principles

Facts:
- In 1950, the Association of Customs Brokers (composed of all brokers and public service operators of
motor vehicles in Manila) and Manlapit, an operator-member of said association filed a petition for
declaratory relief challenging the validity of Manila City Ordinance No. 3379:
o While the ordinance levies a so-called property tax, it is in reality a license tax beyond the power of
the Municipal Board
 S.M.O
Issue(s):
w/n Ordinance No. 3379 is valid
SC Ratio:
No, it is invalid for levying an excise tax which is not within the scope of the City’s powers and for violating the
rule on uniformity.
Under section 70(b) of the Motor Vehicles Law (Act No. 3392):
“No further fees than those fixed in this Act shall be exacted or demanded by any public highway, bridge or
ferry, or for the exercise of the profession of chauffeur, or for the operation of any motor vehicle by the
owner thereof: Provided, however, That nothing in this Act shall be construed to exempt any motor vehicle
from the payment of any lawful and equitable insular, local or municipal property tax imposed thereupon. .
.”
This provision should be construed as limiting the broad grant of power conferred upon the City of Manila by its
Charter to impose taxes, such that only property taxes may be imposed on motor vehicles operating within its
territorial jurisdiction.
Sec. 1 of Ordinance No. 3379 denominates the tax imposed as ad valorem (meaning tax proportional to value of
the property) and while as a rule an ad valorem tax is a property tax, such rule is not absolute. Rather, the
character of the tax (property v. excise) must be determined by its incidents, and from the natural and legal effect
of the language employed in the act or ordinance, and not by the name by which it is described, or by the mode
adopted in fixing its amount. Excise taxes are those imposed upon the performance of an act, enjoyment of a
privilege, or the engaging in an occupation.
The purpose of the ordinance is to raise funds for the repair, maintenance and improvement of the streets and
bridges in said city, something which the Motor Vehicles Law already addresses. The prohibition under sec. 70(b)
is meant to prevent municipal corporations from duplicating the levy since under sec. 73 of the same act, they
already participate in the distribution of the proceeds collected under the Motor Vehicles Law--RATIO. “It is for
this reason that we believe that the ordinance in question merely imposes a license fee although under the cloak
(disguise) of an ad valorem tax to circumvent the prohibition above adverted to.”
Moreover, the ordinance violates the rule of uniformity since “[i]t does not distinguish between a motor vehicle
hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the
City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public
highways. The distinction is important if we note that the ordinance intends to burden with the tax only those
registered in the City of Manila as may be inferred from the word "operating" used therein. The word "operating"
denotes a connotation which is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be
operated without previous payment of the registration fees”.

F. ORMOC SUGAR CO. V. TREASURER OF ORMOC CITY (1968) | EQUAL

PROTECTION CLAUSE

G.R. No. L-23794, 22 SCRA 603, February 17, 1968

Doctrine: For a classification to be valid, it should be applicable to future conditions as well.

Facts:
1. The Municipal Board of Ormoc City passed Ordinance No. 4, Series of 1964, imposing “on any and all productions
of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to 1% per export
sale to the United States of America and other foreign countries.”
 S.M.O

Held:
• Yes, the ordinance is unconstitutional for being violative of equal protection clause.
• The equal protection clause applies only to persons or things identically situated and does not bar a reasonable
classification of the subject of legislation, and a classification is reasonable where (1) it is based on substantial
distinctions which make real differences; (2) these are germane to the purpose of the law; (3) the classification applies
not only to present conditions but also to future conditions which are substantially identical to those of the present;
(4) the classification applies only to those who belong to the same class.
• The questioned ordinance does not meet the requisites for a reasonable classification.
• The ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and
none other. At the time of the taxing ordinance’s enactment, Ormoc Sugar Company, Inc., it is true, was the only
sugar central in the city of Ormoc.
• To be reasonable, it should be applicable to future conditions as well. The taxing ordinance should not be
singular and exclusive as to exclude any subsequently established sugar central, of the same class as
plaintiff, for the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to
the tax because the ordinance expressly points only to Ormoc City Sugar Company, Inc. as the entity to be levied
upon.

3. Uniformity of Taxation

a. KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., vs. TAN

G.R. No. 81820

June 30, 1988

FACTS:

EO 273 was issued by the President of the Philippines on 25 July 1987, to take effect on 1 January 1988, and which
amended certain sections of the National Internal Revenue Code and adopted the VAT.
The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with
aggregate gross annual sales of articles and/or services, exceeding P200,000.00, to his purchase of goods and services,
unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts realized
from the sale of services.

The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers,
advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed
to rationalize the system of taxing goods and services; simplify tax administration; and make the tax system
more equitable, to enable the country to attain economic recovery.

The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued.

Four (4) petitions, which seek to nullify E. O. No. 273 have been consolidated in this case.

ISSUE: Whether VAT is oppressive, discriminatory, regressive, and violates the due process and equal
protection clauses and other provisions of the 1987 Constitution.

RULING:

No. EO 273 is not oppressive, discriminatory, unjust and regressive, and is not a violation of the provisions
of Art. VI, sec. 28(1) of the 1987 Constitution, which states:

Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system
of taxation.
S.M.O
"A tax is considered uniform when it operates with the same force and effect in every place where the subject
may be found."

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in
business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products,
spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of
the general public.

The Court found no reason to impede its application or continued implementation.

OTHER VERSION:

Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc vs. Tan

G.R No. L-81311 June 30, 1988

FACTS: The petitioners seeks to nullify Executive Order No. 273 issued by the President of the Philippines on
July 25, 1987, to take effect on January 1, 1988, and which amended certain sections of the National Internal Revenue
Code and adopted the Value-added tax (VAT), for being unconstitutional in that its enactment is not allegedly within
the powers of the President; that the Vat is oppressive, and violates the due process and equal protection clauses and
other provisions of the 1987 Constitution.

ISSUES: 1. Whether or not Executive Order No. 273 is unconstitutional on the ground that the President had
no authority to issue the said EO.
2. Whether or not Executive Order No.273 is oppressive, discriminatory, unjust and regressive, in violation of
the provisions of Art. VI, sec. 28(1) of the 1987 Constitution.
3. Whether or not EO 273 unduly discriminates against custom brokers.

HELD: 1. The EO 273 issued by the President is constitutional. Under the Proclamation No. 3, which decreed
a Provisional Constitution, sole legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional
Constitution states that, “Sec. 1 Until the Legislature is elected and convened under a new Constitution, the President
shall continue to exercise legislative powers”. On October 15, 1986, the Constitutional Commission of 1986 adopted a
new Constitution for the Republic of the Philippines which was ratified in a plebiscite conducted on February 2, 1987.
Art. XVIII, sec.6 of said Constitution, provides that, “Sec. 6 The incumbent President shall continue to exercise
legislative powers until the first Congress is convened”. Under both the Provisional and 1987 Constitution, the President
is vested with legislative powers until a legislature under a new Constitution is convened. The First Congress, created
and elected under the 1987 Constitution, was convened on July 27, 1987. Hence, the enactment of EO 273 on July 25,
1987, two days before Congress convened on July 27, 1987, was within the President’s constitutional power and
authority to legislate.
2. EO 273 satisfies all the requirements of a valid tax. It is uniform.
Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public,
which are not exempt, at constant rate of 0% or 10%. The disputed tax is also equitable. It is imposed only on sales of
goods and services by persons engaged in business with an aggregate gross annual sales exceeding Php 200, 000.00.
Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of
farm and marine products, so that the cost of basic food and other necessities, spared as they are from the incidence of
the VAT, are expected to be relatively lower and within the reach of the general public.
3. The phrase “except customs brokers” under Sec. 103 of EO 273 is not meant to discriminate against customs
brokers. It was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes the services
of customs brokers subject to the payment of the VAT and to distinguish customs brokers from other professionals
who are subject to the payment of an occupation tax under the Local Tax Code. The distinction is based upon material
differences, in that the activities of customs brokers partake more of a business, rather than a profession and were thus
subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO
273. EO 273 abolished the percentage tax and replaced it with the VAT.
S.M.O

FACTS:
In January 1897, the Spanish Government, in accordance with the provisions of the royal decree of May 14, 1867,
granted J. Casanovas certain mines in the Province of Ambos Camarines. They were so considered by the Collector of
Internal Revenue and were by him said to fall within the provisions of Section 134 of Act 1189 which imposes an
annual tax and an ad valorem tax (tax based on the assessed value of an item, such as real estate or personal property-
e.g. most common-tax on real prop; taxes on imported goods) on all valid perfected mining concessions granted prior
to April 11th, 1899. The Commissioner, JNO S. Hord, imposed upon these properties the tax mentioned in Section
134, which Casanovas paid under protest.

ISSUE:
Is Section 134 valid?

RULING:
No, the concessions granted by the Government of Spain to the plaintiff, constitute contracts between the parties;
that section 134 of the Internal Revenue Law impairs the obligation of these contracts, and is therefore void as to
them. The deed constituted a contract between the Spanish Government and Casanovas. Furthermore, the section
conflicts with Section 60 of the Act of Congress of July 1, 1902, which indicate that concessions (exemption) can be
cancelled only by reason of illegality in the procedure by which they were obtained, or for failure to comply with the
conditions prescribed as requisites for their retention in the laws under which they were granted. The grounds were
not shown nor claimed in the case.

b. TOLENTINO VS. THE SECRETARY OF FINANCE

NOTE:
• R.A 7716 - An Act Restructing The Value Added Tax (Vat) System, Widening Its Tax Base
And Enhancing Its. Administration, And For These Purposes Amending. And Repealing
The Relevant Provisions Of The NIRC
• Chamber of Real Estate and Builders' Associations Inc. (CREBA) - The largest Real
Estate umbrella organization in the Philippines - a private non-stock non-profit
corporation established under Philippine law. As the name suggests, it started out as the
union of Philippine business and trade associations in the real estate, housing and
construction industry.
• CREBA was established in October 1973
• Today ~ with 32 Chapters throughout the Philippines and 7 overseas ~
• CREBA is the recognized umbrella organization of some 4,000 firms, individuals and
associations directly or indirectly involved in land and housing, construction, allied industries
and various professional fields of discipline.
• CREBA’s membership includes developers of land, housing subdivisions, condominiums,
industrial estates, resorts, hotels and retirement facilities; home builders; brokers; building
contractors; professionals in the fields of urban and environmental planning, architecture,
engineering, and real estate management; property appraisers; financial advisors; and
suppliers of land development and construction inputs.

FACTS: The valued-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on
the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or
properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No.
7716 (Expanded Value-Added Tax Law) seeks to widen the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue Code.

The Chamber of Real Estate and Builders Association (CREBA) contends that the imposition of VAT on sales and
leases by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision
of “non-impairment of contracts.”

ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates the contract clause under Art. III, sec
S.M.O
which retains adequate authority to secure the peace and good order of society. In truth, the Contract Clause has never
been thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption has been
granted for a valid consideration.

Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it to make this claim. Rather, its
position, as discussed above, is that the removal of its tax exemption cannot be made by a general, but only by a specific,
law.

Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal and substantive aspects as this
has been raised in the various cases before it. To sum up, the Court holds:

(1) That the procedural requirements of the Constitution have been complied with by Congress in the enactment
of the statute;

(2) That judicial inquiry whether the formal requirements for the enactment of statutes - beyond those prescribed
by the Constitution - have been observed is precluded by the principle of separation of powers;

(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise of
religion, nor deny to any of the parties the right to an education; and

(4) That, in view of the absence of a factual foundation of record, claims that the law is regressive, oppressive and
confiscatory and that it violates vested rights protected under the Contract Clause are prematurely raised and do not
justify the grant of prospective relief by writ of prohibition. – parties failed to prove that the law is regressive,
oppressive and confiscatory and that it violates rights under Contract Clause.

c. Cagayan Electric Power & Light Co. vs. Commissioner GR L-60126, 25 September 1985
Second Division, Aquino (J): 5 concur

Facts: Cagayan Electric is a holder of a legislative franchise under Republic Act 3247 where payment of 3% tax on gross
earnings is in lieu of all taxes and assessments upon privileges, etc. In 1968, RA 5431 amended the franchise by making
all corporate taxpayers liable for income tax except those indicated in paragraph (c) (1) of Section 24 of the Tax Code.
In 1969, through RA 6020, its franchise was extended to two other towns and the tax exemption was reenacted. In 1973,
the Commissioner required the company to pay deficiency income taxes for 1968 to 1971.

Issue: Whether the withdrawal of the franchise’s tax exemption violates the non-impairment clause of the Constitution.

Held: Congress could impair the company’s legislative franchise by making it liable for income tax. The Constitution
provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so
requires (Sec. 11, Art.12, 1987 Constitution). RA 3247 itself provides that the franchise is subject to amendment, etc. by
Congress. The enactment of RA 5431 had the effect of withdrawing the company’s exemption from income tax. The
exemption was restored by the enactment of RA 6020. Therefore, the company is liable only for the income tax for the
period of 1 January to 3 August 1969.

6. Non-Imprisonment for Non-Payment of Poll Tax

7. Bills to Originate from the House of Representatives

a. Tolentino v. Secretary of Finance - 249 SCRA 635

NOTE: SECTION 24, Art. 6, 1987 Consti.. All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with amendments.
 S.M.O

ISSUE:
W/N the the Expanded Value-Added Tax Law is unconstitutional for having “originated” from the Senate, and not
the HoR.

HELD:
----à main issue related to topic: Petition is unmeritorious. The enactment of the Senate bill has not been the
first instance where the Senate, in the exercise of its power to propose amendments to bills (required to originate
in the House), passed its own version. An amendment by substitution (striking out the text and substituting it), as
urged by petitioners, concerns a mere matter of form, and considering the petitioner has not shown what
substantial difference it would make if Senate applied such substitution in the case, it cannot be applied to the
case at bar. While the aforementioned Constitutional provision states that bills must “originate exclusively in the
HoR,” it also adds, “but the Senate may propose or concur with amendments.” The Senate may then propose an
entirely new bill as a substitute measure. Petitioners erred in assuming the Senate version to be an independent
and distinct bill. Without the House bill, Senate could not have enacted the Senate bill, as the latter was a mere
amendment of the former. As such, it did not have to pass the Senate on second and third readings. ----

Petitioners question the signing of the President on both bills, to support their contention that such are separate
and distinct. The President certified the bills separately only because the certification had to be made of the
version of the same revenue bill which AT THE MOMENT was being considered.

Petitioners question the power of the Conference Committee to insert new provisions. The jurisdiction of the
conference committee is not limited to resolving differences between the Senate and the House. It may propose
an entirely new provision, given that such are germane to the subject of the conference, and that the respective
houses of Congress subsequently approve its report.

Petitioner PAL contends that the amendment of its franchise by the withdrawal of its exemption from VAT is not
expressed in the title of the law, thereby violating the Constitution. The Court believes that the title of the R.A.
satisfies the Constitutional Requirement.

Petitioners claim that the R.A. violates their press freedom and religious liberty, having removed them from the
exemption to pay VAT. Suffice it to say that since the law granted the press a privilege, the law could take back
the privilege anytime without offense to the Constitution. By granting exemptions, the State does not forever
waive the exercise of its sovereign prerogative.

Lastly, petitioners contend that the R.A. violates due process, equal protection and contract clauses and the rule
on taxation. Petitioners fail to take into consideration the fact that the VAT was already provided for in E.O. No.
273 long before the R.A. was enacted. The latter merely EXPANDS the base of the tax. Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate, the taxing
power having authority to make reasonable and natural classifications for purposes of taxation. It is enough that
the statute applies equally to all persons, forms and corporations placed in s similar situation.

Tolentino v Sec. of Finance – READ THE RULING HERE SHIELA!!

Facts:
- House of Rep. filed House Bill 11197 (An Act Restructuring the VAT System to Widen its Tax Base
and Enhance its Admin., Amending for these Purposes…)
- Upon receipt of Senate, Senate filed another bill completely different from that of the House Bill
- Senate finished debates on the bill and had the 2nd and 3rd reading of the Bill on the same day
- Bill was deliberated upon in the Conference Committee and become enrolled bill which eventually
became the EVAT law.
 S.M.O
provided for the removal of the exemption from taxes of PAL and that it was inly made after the
meeting of the Conference Committee w/c was not expressed in the title of RA 7166

Held:
(1) YES! Court said that it is not the law which should originate from the House of Rep, but the revenue
bill which was required to originate from the House of Rep. The initiative must come from the Lower
House because they are elected in the district level – meaning they are expected to be more sensitive
to the needs of the locality.
Also, a bill originating from the Lower House may undergo extensive changes while in the Senate.
Senate can introduce a separate and distinct bill other than the one the Lower House proposed. The
Constitution does not prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of
the House bill, so long as action by Senate is withheld pending the receipt of the House bill.
(2) NO. The Pres. certified that the Senate bill was urgent. Presidential certification dispensed the
requirement not only of printing but also reading the bill in 3 separate days. In fact, the Senate
accepted the Pres. certification
(3) No. Court said that the title states that the purpose of the statute is to expand the VAT system and
one way of doing this is to widen its base by withdrawing some of the exemptions granted before. It is
also in the power of Congress to amend, alter, repeal grant of franchises for operation of public utility
when the common good so requires.
One subject rule is intended to prevent surprise upon Congress members and inform people of pending
legislation. In the case of PAL, they did not know of their situation not because of any defect in title but
because they might have not noticed its publication until some event calls attention to its existence.

8. Veto Power of the President

9. President’s Power to Tax
10. Taxation and Freedom of the Press
a. TOLENTINO v. Sec. of Finance

Facts:
These are motions seeking reconsideration of the Court’s decision dismissing the petitions filed in these cases
for the declaration of unconstitutionality of R.A. No. 7716 (Expanded Value-Added Tax Law). The motions,
of which there are 10 in all, have been filed by the several petitioners in these cases, with the exception of the Philippine
Educational Publishers Association, Inc. and the Association of Philippine Booksellers, petitioners in G.R. No.
115931.

ISSUE: WON It violates Freedom of the Press

Ruling:

The PPI contends that by removing the exemption of the press from the VAT while maintaining those granted
to others, the law discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of
constitutionally guaranteed freedom is unconstitutional."

In withdrawing the exemption, the law merely subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different from the tax involved in the cases invoked by the PPI. The
license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be discriminatory
because it was laid on the gross advertising receipts only of newspapers whose weekly circulation was over 20,000,
with the result that the tax applied only to 13 out of 124 publishers in Louisiana. These large papers were critical of
Senator Huey Long who controlled the state legislature which enacted the license tax. The censorial motivation for the
law was thus evident.

On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575,
75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have been made liable for the
sales tax or for the use tax on the privilege of using, storing or consuming tangible goods, the press was not. Instead,
S.M.O
are likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort to broaden the base
of the tax.

A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957)
which invalidated a city ordinance requiring a business license fee on those engaged in the sale of general merchandise.
It was held that the tax could not be imposed on the sale of bibles by the American Bible Society without restraining
the free exercise of its right to propagate.

---àThe VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much
less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment
is not to burden the exercise of its right any more than to make the press pay income tax or subject it to
general regulation is not to violate its freedom under the Constitution.

Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from
the sales are used to subsidize the cost of printing copies which are given free to those who cannot afford to pay so that
to tax the sales would be to increase the price, while reducing the volume of sale. Granting that to be the case, the
resulting burden on the exercise of religious freedom is so incidental as to make it difficult to differentiate it from any
other economic imposition that might make the right to disseminate religious doctrines costly. Otherwise, to follow
the petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible burden on the
right of the preacher to make a sermon.

On the other hand the registration fee of P1,000.00 imposed by Sec.107 of the NIRC, as amended by Sec.7
of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration and enforcement of
provisions such as those relating to accounting in Sec. 108 of the NIRC. That the PBS distributes free bibles and
therefore is not liable to pay the VAT does not excuse it from the payment of this fee because it also sells some copies.
At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the event it is assessed by the
Commissioner of Internal Revenue.
S.M.O

Other version of RULING: READ THIS –IT’S MUCH BETTER

IT DOES NOT INFRINGE PRESS FREEDOM. It would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The reason is
simple: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogative.

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which
other businesses have long ago been subject. Nor is it true that only two exemptions previously granted by
E.O. No. 273 are withdrawn "absolutely and unqualifiedly" by R.A. No. 7716. Other exemptions from the
VAT, such as those previously granted to PAL, petroleum concessionaires, enterprises registered with the
Export Processing Zone Authority, and many more are likewise totally withdrawn, in addition to
exemptions which are partially withdrawn, in an effort to broaden the base of the tax.

The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions,
which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some of
these transactions will suffice to show that by and large this is not so and that the exemptions are granted
for a purpose. As the Solicitor General says, such exemptions are granted, in some cases, to encourage
agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit.

The PPI asserts that it does not really matter that the law does not discriminate against the press because
"even nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional." PPI cites in
support of this assertion the following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292
(1943):

The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First
Amendment is not so restricted. A license tax certainly does not acquire constitutional validity because it
classifies the privileges protected by the First Amendment along with the wares and merchandise of
hucksters and peddlers and treats them all alike. Such equality in treatment does not save the ordinance.
Freedom of press, freedom of speech, freedom of religion are in preferred position.

The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation.
Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right.
Hence, although its application to others, such those selling goods, is valid, its application to the press or to
religious groups, such as the Jehovah's Witnesses, in connection with the latter's sale of religious books and
pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income
or property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon."

The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much
less a constitutional right. It is imposed on the sale, barter, lease or exchange(SBLE) of goods or
properties or the sale or exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to burden the exercise of its right any more
than to make the press pay income tax or subject it to general regulation is not to violate its
freedom under the Constitution. --- MAIN ANSWER

11. Taxation and Freedom of Religion

S.M.O

American Bible Society vs City of Manila GR 9637 30 April 1957

Facts: American Bible Society is a foreign, non-stock, non-profit, religious, missionary corporation duly
registered and doing business in the Philippines. In the course of its ministry, plaintiff’s Philippine agency
has been distributing and selling bibles and/or gospel portions thereof. The acting City Treasurer of the
City of Manila informed plaintiff that it was conducting the business of general merchandise without
providing itself with the necessary Mayor’s permit and municipal license, in violation of Ordinance No.
3000 (permit) and Ordinances Nos. 2529 (payment of fees) and required plaintiff to secure the
corresponding permit and license fees.

Issue: Whether or not the selling of bible by the Society should be taxed?

Decision: Decision reversed. Ordinance 2529 restrains the free exercise and enjoyment of religious
profession and worship. The constitutional guaranty of the free exercise and enjoyment of religious
profession and worship carries with it the right to disseminate religious information. Any restraints of such
right can only be justified like other restraints of freedom of expression on the grounds that there is a
clear and present danger of any substantive evil which the State has the right to prevent.
Ordinance 3000 – It may be true that in the case at bar the price asked for the bibles and other religious
pamphlets was in some instances a little bit higher than the actual cost of the same but this cannot mean
that appellant was engaged in the business or occupation of selling said “merchandise” for profit. For this
reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be
applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious
profession and worship as well as its rights of dissemination of religious beliefs.

12. Tax Exemption of Properties Used for Religious, Charitable, and Educational purposes
a. Abra Valley College vs Aquino, 162 SCRA 106 (1988)

FACTS:

• Abra Valley College Inc. filed a petition to annul and declare void the “Notice of Seizure” and
“Notice of Sale” of its lot and building for non-payment of real estate taxes and penalties.
• Said school also (1) housed elementary pupils in a two-story building across the street and (2) that
the high school and college students are housed in the main building and (3) that the director with
his family is in the second floor of the main building.
• Abra Valley contends that the primary use of the lot and the building is for educational purposes
making it exempt from property taxes under the Constitution
• Respondents maintain that the such was subjected to seizure and sale to answer for the unpaid
tax are used for (1) educational purposes,(2) as the permanent residence of the president and
director and his family including the in-laws and grandchildren and (3) for commercial purposes
because the ground floor of the college building is being used and rented by commercial
establishment, the Northern Marketing Corporation
S.M.O

ISSUE:
Whether the lot and building and questionnaire used exclusively for educational purposes.

RULING:
No.
The exemption in favor of property used exclusively for charitable or educational purposes is not limited
to property “actually indispensable” but extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes. The test of exemption from taxation is the use of the
property for purposes mentioned in the Constitution. The phrase “exclusively used for educational
purposes” has always been made that exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main purposes.

The second floor being used for residential purposes of the director and his family may be justified but
the LEASE of the first floor thereof to Northern Marketing Corporation cannot be considered incidental to
the purpose of education. However, since only a portion is used for purposes of hammers it is only fair
that half of the assessed tax be returned to the school involved.

b. Rey Lladoc v. CIR, 14 Phil. 292

Fact: Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr.
Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for
the construction of a new Catholic Church in the locality. The total amount was actually spent for the
purpose intended. On March 3, 1958, the donor M.B. Estate, Inc., filed the donor’s gift tax return. Under
date of April 29, 1960, the respondent Commissioner of Internal Revenue issued an assessment for
donee’s gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the
priest. The tax amounted to P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958
to June 15, 1960, and the compromise for the late filing of the return. Petitioner lodged a protest to the
assessment and requested the withdrawal thereof. The protest and the motion for reconsideration
presented to the Commissioner of Internal Revenue were denied. The petitioner appealed to the Court
of Tax Appeals on November 2, 1960. In the petition for review, the Rev. Fr. Casimiro Lladoc claimed,
among others, that at the time of the donation, he was not the parish priest in Victorias; that there is no
legal entity or juridical person known as the “Catholic Parish Priest of Victorias,” and, therefore, he should
not be liable for the donee’s gift tax. It was also asserted that the assessment of the gift tax, even against
the Roman Catholic Church, would not be valid, for such would be a clear violation of the provisions of
the Constitution.

Issue: Whether the petitioner is liable for the assessed donee’s gift tax on the donated for the construction
of the Victorias Parish Church.

Held: Yes, exempts from taxation cemeteries, churches and parsonages or convents, appurtenant
thereto, and all lands, buildings, and improvements used exclusively for religious purposes. The
exemption is only from the payment of taxes assessed on such properties enumerated, as property taxes,
as contra distinguished from excise taxes. In the present case, what the Collector assessed was a
donee’s gift tax; the assessment was not on the properties themselves. It did not rest upon general
ownership; it was an excise upon the use made of the properties, upon the exercise of the privilege of
receiving the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the
exempting provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax
S.M.O
imposed on the transfer of property by way of gift inter vivos, the imposition of which on property used
exclusively for religious purposes, does not constitute an impairment of the Constitution. As well observed
by the learned respondent Court, the phrase “exempt from taxation,” as employed in the Constitution
(supra) should not be interpreted to mean exemption from all kinds of taxes. And there being no clear,
positive or express grant of such privilege by law, in favor of petitioner, the exemption herein must be
denied.

c. YMCA of Manila v. Collector of Internal Revenue, 33 Phil. 217

Fact: The Young Men’s Christian Association came to the Philippine with the army of occupation in 1898.
When the large body of troops in Manila was removed to permanent quarters at Fort William McKinley in
February, 1905, an independent association for Manila was organized under the direction of the Army
and navy departments. Shortly after the organization of the association the directors made a formal
request to the international committee of the Young Men’s Christian Association in New York City for the
assistance and cooperation of its foreign department. A site for the new building was selected on Calle
Concepcion, Ermita, and the building contract was let on the 8th of January following. The cornerstone
was laid with appropriate ceremonies on July 10, 1908, and the building was formally dedicated on
October 20, 1909.

The purposes of the association, as set forth in its charter and constitution, are:

To develop the Christian character and usefulness of its members, to improve the spiritual, intellectual,
social and physical condition of young men, and to acquire, hold, mortgage, and dispose of the necessary
lands, buildings and personal property for the use of said corporation exclusively for religious, charitable
and educational purposes, and not for investment or profit.

The purposes of this association shall be exclusively religious, charitable and educational, in developing
the Christian character and usefulness of its members and in improving the spiritual, mental, social and
physical condition of young men.

Issue: Whether the building and grounds of the Young Men’s Christian Association of Manila are subject
to taxation Exemption?

Held: Yes, There is no doubt about the correctness of the contention that an institution must devote itself
exclusively to one or the other of the purpose mentioned in the statute before it can be exempt from
taxation; but the statute does not say that it must be devoted exclusively to any one of the purposes
therein mentioned. It may be a combination of two or three or more of those purposes and still be entitled
to exempt. The Young Men’s Christian Association of Manila cannot be said to be an institution used
exclusively for religious purposes, or an institution used exclusively for charitable purposes, or an
institution devoted exclusively to educational purposes; but we believe it can be truthfully said that it is
an institution used exclusively for all three purposes, and that, as such, it is entitled to be exempted from
taxation.

OTHER VERSION:
S.M.O

YMCA vs CIR 33 Phil 217

Facts: YMCA is a non-stock, non-profit institution which conducts various programs and activities that are beneficial
for the public, especially the young people pursuant to its religious, educational and charitable objectives. YMCA earned
an income from leasing a portion of its premises to small shop owners and from parking fees collected from non-
members, upon w/c CIR assessed taxes. YMCA protested the assessment and got denied. This led to filing for petition
for review with Court of Tax Appeals. CTA decided in favour of YMCA citing that the income from the lease and fees
are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of YMCA. The earnings
from these for the use of recreational facilities constitute the bulk of its income w/c is used to support its many activities
to attain its objectives. CIR elevated the case to CA w/c reversed CTA decision.

Issue: Whether or not income of YMCA from lease and fee are exempt from tax?

Decision: The income is not exempt from tax. Under NIRC, the income received by civic league or clubs not organized
for profit are exempt from tax in respect to income received by them. The exemption does not apply to income derived
from any of their properties or any activities conducted for profit regardless of the disposition made of such income.
Because taxes are the lifeblood of the nation, strict interpretation in construing tax exemptions should be applied.
Exemption “must be granted in a statute stated in a language too clear to be mistaken.” – it defined educational
institution-> YMCA does not fall under the def. of education

d. Province of Abra vs Judge Hernando, The Roman Catholic Bishop of Bangued, Inc.
107 SCRA 104

FACTS: The Province of Abra sought to tax the properties of The Roman Catholic Bishop of Bangued,
Inc. Desirous of being exempted from a real estate tax, the latter filed a petition for declaratory relief on
the ground that other than being exempted from payment of real estate taxes, its properties are also
“being actually, directly and exclusively used for religious or charitable purposes as sources of support
for the bishop, the parish priest and his helpers.” After conducting a summary hearing, respondent Judge
Hernando granted the exemption without hearing the side of petitioner. The petitioner then filed a motion
to dismiss but the same was denied. Hence, this present petition for certiorari and mandamus alleging
denial of procedural due process.

ISSUE: Whether or not the properties of the church in this case is exempt from taxes.

HELD: No, they are not tax exempt. It is true that the Constitution provides that “charitable institutions,
mosques, and non-profit cemeteries” are required that for the exemption of “lands, buildings, and
improvements,” they should not only be “exclusively” but also “actually” and “directly” used for religious
or charitable purposes. There must be proof therefore of the actual and direct use of the lands, buildings,
and improvements for religious or charitable purposes to be exempt from taxation. It has been the
constant and uniform holding that the exemption from taxation is not favored and is never presumed, so
that if granted it must be strictly construed against the taxpayer. Affirmatively put, the law frowns on
exemption from taxation, hence, an exempting provision should be construed strictissimi juris. However,
in this case, there is no showing that the said properties are actually and directly used for religious or
charitable uses.
S.M.O

On the other hand, the respondent Judge, in his capacity to hear the case at bar, would not have erred
so grievously had he merely compared the provisions of the present Constitution with that appearing in
the 1935 Charter on the tax exemption of "lands, buildings, and improvements." There is a marked
difference. Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious,
charitable, or educational purposes shall be exempt from taxation." The present Constitution added
"charitable institutions, mosques, and non-profit cemeteries" and required that for the exemption of
"lands, buildings, and improvements," they should not only be "exclusively" but also "actually and
"directly" used for religious or charitable purposes. The Constitution is worded differently. The change
should not be ignored. It clearly appears, therefore, that in failing to accord a hearing to petitioner
Province of Abra and deciding the case immediately in favor of private respondent, respondent Judge
failed to abide by the constitutional command of procedural due process. The petition was granted.
Respondent Judge, or whoever was acting on his behalf, was ordered to hear the case on the merit.
S.M.O

11. Tax Exemptions Granted to Non-Stock, Non-Profit Educational Institutions

12. Appropriation of Public Money
13. Grant of Tax Exemptions
S.M.O

a. Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance Secretary
238 SCRA 63

Facts:
Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose
members, individually or collectively, are engaged in the buying and selling of copra in Misamis Oriental.
On the other hand, respondents represent departments of the executive branch of government charged
with the generation of funds and the assessment, levy and collection of taxes and other imposts. It alleges
that prior to the issuance of Revenue Memorandum Circular (RMC) 47-91 on June 11, 1991, which
implemented Value Added Tax (VAT) Ruling 190-90, copra was classified as agricultural food product
under Section 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all
stages of production or distribution.
The petitioner contends that the Bureau of Food and Drug of the Department of Health and not
the Bureau of Internal Revenue (BIR) is the competent government agency to determine the proper
classification of food products. It cites the opinion of Dr. Quintin Kintanar of the Bureau of Food and Drug
to the effect that copra should be considered "food" because it is produced from coconut which is food
and 80% of coconut products are edible. The respondents, on the contrary, argue that the opinion of the
BIR, as the government agency charged with the implementation and interpretation of the tax laws, is
entitled to great respect.
Likewise, petitioner claims that RMC No. 47- 91 is discriminatory and violative of the equal
protection clause of the Constitution because while coconut farmers and copra producers are exempt,
traders and dealers are not, although both sell copra in its original state. Petitioners add that oil millers
do not enjoy tax credit out of the VAT payment of traders and dealers. Thus, the present petition for
prohibition and injunction seeking to nullify Revenue Memorandum Circular No. 47-91 and enjoin the
collection by respondent revenue officials of the Value Added Tax (VAT) on the sale of copra by members
of petitioner organization.

Issues:

1. Is copra an agricultural food product for purposes of the provisions of the National Internal
Revenue Code (NIRC), thus exempting the petitioner from payment of the Value Added
Tax (VAT)? NO

2. Whether or not the opinion of the Commissioner of Internal Revenue should be accorded
respect in interpreting the provisions of the National Internal Revenue Code. YES

3. Is RMC No. 47-91 violative of the equal protection clause? NO

4. Are oil millers exempt from payment of the Value Added Tax (VAT)? NO

Held:

1. NO. In the case at bar, the SC find no reason for holding that respondent Commissioner erred in
not considering copra as an "agricultural food product" within the meaning of Section 103(b) of the
NIRC. As the Solicitor General contends, "copra per se is not food, that is, it is not intended for
human consumption. Simply stated, nobody eats copra for food." That previous Commissioners
considered it so is not reason for holding that the present interpretation is wrong. The
Commissioner of Internal Revenue is not bound by the ruling of his predecessors. To the contrary,
the overruling of decisions is inherent in the interpretation of laws. Under Section 103(a) of the
National Internal Revenue Code, the sale of agricultural non-food products in their original state is
exempt from VAT only if the sale is made by the primary producer or owner of the land from which
S.M.O
the same are produced. The sale made by any other person or entity, like a trader or dealer,
is not exempt from the tax. On the other hand, under Section 103(b) the sale of agricultural food
products in their original state is exempt from VAT at all stages of production or distribution
regardless of who the seller is. The reclassification had the effect of denying to the petitioner the
exemption it previously enjoyed when copra was classified as an agricultural food product under
Section 103(b) of the National Internal Revenue Code.

2. The Supreme Court ruled in the affirmative. In interpreting Section 103(a) and (b) of the National
Internal Revenue Code, the Commissioner of Internal Revenue gave it a strict construction
consistent with the rule that tax exemptions must be strictly construed against the taxpayer and
liberally in favor of the state.

Moreover, as the government agency charged with the enforcement of the law, the opinion
of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong,
is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue
in the exercise of his power under Section 245 of the NIRC to "make rulings or opinions in
connection with the implementation of the provisions of internal revenue laws, including rulings on
the classification of articles for sales tax and similar purposes."

3. The Supreme Court ruled in the negative. There is a material or substantial difference between
coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the
other. The former produce and sell copra, the latter merely sell copra. The Constitution does not
forbid the differential treatment of persons so long as there is a reasonable basis for classifying
them differently.
4. It is not true that oil millers are exempt from VAT. Pursuant to Section 102 of the National Internal
Revenue Code, they are subject to 10% VAT on the sale of services. Under Section 104 of the
Tax Code, they are allowed to credit the input tax on the sale of copra by traders and dealers, but
there is no tax credit if the sale is made directly by the copra producer as the sale is VAT exempt.
In the same manner, copra traders and dealers are allowed to credit the input tax on the sale of
copra by other traders and dealers, but there is no tax credit if the sale is made by the producer.

WHEREFORE, the petition is DISMISSED.

16. Local Taxation F. Classification of Taxes

No. 3. As to the object or subject
matter of the tax
a. Villanueva V City Of Iloilo a. Property
b. Personal
(26 SCRA 578) c. Poll/Capitation
d. Excise
FACTS:
Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted Ordinance 11 Series of
1960, imposing a municipal license tax on tenement houses in accordance with the schedule of payment
provided by therein. Villanueva and the other appellees are apartment owners from whom the city
collected license taxes by virtue of Ordinance 11. Appellees aver that the said ordinance is
unconstitutional for RA 2264 does not empower cities to impose apartment taxes; that the same is
oppressive and unreasonable for it penalizes those who fail to pay the apartment taxes; that it constitutes
not only double taxation but treble (TRIPLE) taxation; and, that it violates uniformity of taxation.
S.M.O
Issues:
1. Does the ordinance impose double taxation?
2. Is Iloilo city empowered by RA 2264 to impose tenement taxes?

NOTE: LOOK FOR VALID DELEGATION ISSUE; SUFFICIENT STANDARD TEST VS.
COMPLETENESS TEST

Held:
1. While it is true that appellees are taxable under the NIRC as real estate dealers, and taxable
under Ordinance 11, double taxation may not be invoked. This is because the same tax may be imposed
by the national government as well as by the local government. The contention that appellees are doubly
taxed because they are paying real estate taxes and the tenement tax is also devoid of merit. A license
tax may be levied upon a business or occupation although the land or property used in connection
therewith is subject to property tax. In order to constitute double taxation, both taxes must be the same
kind or character. Real estate taxes and tenement taxes are not of the same character.
2. RA 2264 confers local governments broad taxing powers. The imposition of the tenement taxes does
not fall within the exceptions mentioned by the same law. It is argued however that the said taxes are
real estate taxes and thus, the imposition of more the 1 per centum real estate tax which is the limit
provided by CA 158 (AN ACT TO AMEND COMMONWEALTH ACT NUMBERED FIFTY-SEVEN,
ENTITLED "AN ACT ESTABLISHING A FORM OF GOVERNMENT FOR THE CITY OF ILOILO.",
makes the said ordinance ultra vires. The court ruled that the tax in question is not a real estate tax. It
does not have the attributes of a real estate tax. By the title and the terms of the ordinance, the tax is a
municipal tax which means an imposition or exaction on the right to use or dispose of property, to
pursue a business, occupation or calling, or to exercise a privilege. Tenement houses being offered for
rent or lease constitute a distinct form of business or calling and as such, the imposition of municipal
tax finds support in Section 2 of RA 2264.
S.M.O

b. Pepsi-Cola Bottling Co. of the Philippines Inc. vs. Municipality of Tanauan, Leyte
Martin, J.:
Facts:
1. Pepsi filed a complaint before the CFI to declare SEC 2 of RA No. 2264 (Local Autonomy
Act) as unconstitutional and as an undue delegation of taxing authority. Pepsi also sought
to have Ordinances 23 and 27 by the Municipality of Tanauan be declared as null and void
2. In a Stipulation of Facts entered into by the parties:
a. Ordinances No. 23 and 27 cover the same subject matter and the imposed production
tax are the same.
b. The Municipal Treasurer is seeking to enforce compliance by Pepsi of Ordinance No.
27 alone
3. Ordinance No. 23 - levies and collects from soft drinks producers and manufacturers at
tax of 1/16 (6.25??) of a centavo for every bottle of soft drink corked.
4. Ordinance No. 27 – levies and collects “on soft drinks produced or manufactured within
the territorial jurisdiction of the municipality a tax of 1 centavo on each gallon of
volume capacity.
5. Tax imposed on both Ordinances No. 23 and 27 is denominated as “municipal production
tax”
6. CFI dismissed the complaint and upheld the constitutionality of the 2 ordinances.

Issue/s: NO
a. Is Sec 2, RA 2264 an undue delegation of power, confiscatory and oppressive? NO
b. Do ordinances nos. 23 and 27 constitute double taxation and impose percentage or specific
taxes? NO
c. Are ordinances nos. 23 unjust and unfair? NO
Ruling:

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a

matter of right to every gov’t without being expressly conferred by the people. It is purely
legislative and which the central legislative body cannot delegate either to the executive of
judicial department of the gov’t without infringing upon the theory of separation of powers.

Legislative powers may be delegated to local governments in respect of matters of local

concern. This is sanctioned by immemorial practice. By necessary implication, the legislative
power to create political corporations for purposes of local self-gov’t carries with it the power
to confer on such local governmental agencies the power to tax.

The plenary (unlimited) nature of the taxing power thus delegated would not suffice to
invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is
not limited to the exact measure of that which is exercised by itself. When it is said that the
taxing power may be delegated to municipalities and the like, it is meant that there may be
delegated such measure of power to impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public
policy the state has not deemed wise to tax for more general purposes.
S.M.O

There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation may not
be exercised. Moreover, double taxation, in general, is not forbidden by our fundamental law,
since we have not adopted as part of our fundamental law the injunction against double
taxation found in the Constitution of the United States and some states of the Union. Double
taxation becomes obnoxious (objectionable) only where the taxpayer is taxed twice for the
benefit of the same governmental entity or by the same jurisdiction for the same purpose, but
not in a case where one tax is imposed by the State and the other by the city of municipality.

2. Ordinance No. 27 was intended as a plain substitute of Ordinance No. 23 and operates as a
repeal of the latter even without words to that effect. As admitted, it is Ordinance no. 27 alone
that is being enforced by the Municipal Treasurer.
As long as the tax levied under the authority of a city or municipal ordinance is not within the
exceptions and limitations in the law, the same comes within the ambit of the general rule.
The limitation applies to the prohibition against municipalities and municipal districts to
impose “any percentage tax on sales or other taxes in any form based thereon nor impose
taxes on articles subject to specific tax, except gasoline, under the provisions of the
NIRC.

As such, a municipal ordinance which prescribes a set ratio between the amount of the tax
and the volume of sale of the taxpayer imposes a sales tax and is null and void for being
outside the power of the municipality to enact. (That is Ordinance 23J)

But, the imposition of “a tax of one centavo (P0.01) on each gallon of volume capacity” on
all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the
nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied
on the produce (whether sold or not) and not on the sales. There is not set ratio between the
volume of sales and the amount of the tax. Nor can the tax levied be treated as a specific tax.
Specific taxes are those imposed on specified articles (spirits, wines, fermented liquors,
products of tobacco other than cigars and cigarettes, matches, firecrackers, etc.) and soft drink
is not one of those specified.

3. The tax of imposed by Ordinance No. 27 cannot be considered unjust and unfair.

Municipal corporations are allowed much discretion in determining the rates of imposable
taxes. This is in line with the constitutional policy of according the widest possible autonomy
to local governments in matters of local taxation, an aspect that is given expression in the
Local Tax Code. Unless the amount is so excessive as to be prohibitive, courts will go slow
in writing off an ordinance as unreasonable.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise

known as the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance
No. 27 of the Municipality of Tanauan, Leyte, series of 1962, repealing Municipal Ordinance
No. 23, same series, is hereby declared of valid and legal effect.
S.M.O

c. PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN

24 SCRA 789
GR No. L-22814, August 28, 1968

"The classification made in the exercise of power to tax, to be valid, must be reasonable ."

FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it under protest, to the
City of Butuan, and collected by the latter, pursuant to its Municipal Ordinance No. 110 which
plaintiff assails as null and void because it partakes of the nature of an import tax, amounts to
double taxation, highly unjust and discriminatory, excessive, oppressive and confiscatory, and
constitutes an invalid delegation of the power to tax. The ordinance imposes taxes for every case
of softdrinks, liquors and other carbonated beverages, regardless of the volume of sales, shipped
to the agents and/or consignees by outside dealers or any person or company having its actual
business outside the City.

ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?

HELD: Yes. The tax levied is discriminatory. Even if the burden in question were regarded as a
tax on the sale of said beverages, it would still be invalid, as discriminatory, and hence, violative
of the uniformity required by the Constitution and the law therefor, since only sales by "agents or
consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or
on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded
those made by said agents or consignees of producers or merchants established outside the City of
Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not
require identity or equality under all circumstances, or negate the authority to classify the objects
of taxation. The classification made in the exercise of this authority, to be valid, must, however,
be reasonable and this requirement is not deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the classification applies equally
to all those who belong to the same class.

OTHER VERSION:
PEPSI-COLA CO. v. CITY OF BUTUAN (24 SCRA 789)
FACTS

In 1960, the City of Butuan enacted Ordinance No. 110, which was subsequently amended by
Ordinance No. 122, imposing a tax on any person or association of P0.10 per case of 24 bottles
of soft drinks.

Pepsi-Cola, which had a warehouse in the city for the storage of its products, challenged said
ordinance, arguing that the exaction of taxes was an undue delegation of legislative power.

RULING
S.M.O

The Supreme Court ruled in favor of Pepsi-Cola.

The general principle against delegation of legislative powers, in consequence of the theory of
separation of powers is subject to one well-established exception, namely: legislative powers
may be delegated to local governments—to which said theory does not apply—in respect of
matters of local concern.

So while the City of Butuan has the power to impose taxes, the subject ordinance is still invalid
for being unjust and discriminatory. It is violative of the uniformity required by the Constitution
since only sales by “agents or consignees” of outside dealers would be subject to the tax.

Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of
their sales, and even if the same exceeded those made by said agents or consignees of producers
or merchants established outside the City of Butuan, would be exempt from the disputed tax.

17. Special Fund

a. Osmena v. Orbos

FACTS: October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special
Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF
was designed to reimburse oil companies for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustments and from increases in the world market prices
of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account,". President
Corazon C. Aquino promulgated E. O. 137 expanding the grounds for reimbursement to oil
companies for possible cost under recovery incurred as a result of the reduction of domestic
prices of petroleum products.
The petitioner argues inter alia that "the monies collected pursuant to . . P.D. 1956, as amended,
must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a
special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as
a special fund' to be used only for the purpose indicated, and not channeled to another
government objective." Petitioner further points out that since "a 'special fund' consists of monies
collected through the taxing power of a State, such amounts belong to the State, although the use
thereof is limited to the special purpose/objective for which it was created."

ISSUE: Whether or not the funds collected under PD 1956 is an exercise of the power of
taxation

RULING: The levy is primarily in the exercise of the police power of the State. While the funds
collected may be referred to as taxes, they are exacted in the exercise of the police power of the
State.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific
limit on how much to tax." The Court is cited to this requirement by the petitioner on the premise
that what is involved here is the power of taxation; but as already discussed, this is not the case.
 S.M.O

What is involved here is not so much the power of taxation as police power. Although the
provision authorizing the ERB to impose additional amounts could be construed to refer to the
power of taxation, it cannot be overlooked that the overriding consideration is to enable the
delegate to act with expediency in carrying out the objectives of the law which are
embraced by the police power of the State.
It would seem that from the above-quoted ruling, the petition for prohibition should fail.

18. Supreme Court’s Jurisdiction Over Tax Cases (Art. 8, Sec.2 and 5(2)(B), 1987 Consti.)

IX. Kinds of Taxes differentiated (P.26 Memaid)

X.Doctrines in Taxation
1. Construction and Interpretation of Tax Laws, Rules, and Regulations
2. Prospectivity of Tax Laws
3. Imprescriptibility of Taxes
4. Situs of Taxation
5. Double Taxation
6. Remedies in Multiple Taxation
7. Escape from Taxation
a) Shifting of Tax Burden
b) Tax Avoidance
c) Tax Evasion
• Ungab Doctrine Sustained in CIR v. Pascor, 309 SCRA 402

a. CIR vs. PASCOR

309 SCRA 402
GR No. 128315 June 29, 1999

"An assessment is not necessary before a criminal charge can be filed."

FACTS: The BIR examined the books of account of Pascor Realty and Devt Corp for years
1986-1988, from which a tax liability of 10.5 Million Pesos was found. Based on the
recommendations of the examiners, the CIR filed an information with the DOJ for tax evasion
against the officers of Pascor. Upon receipt of the subpoena, the latter filed an urgent request for
reconsideration/reinvestigation with the CIR, which was immediately denied upon the ground
that no formal assessment has yet been issued by the Commisioner. Pascor elevated the CIR's
decision to the CTA on a petition for review. The CIR filed a Motion to Dismiss on the ground
of lack of jurisdiction of CTA as there was no formal assessment made against the respondents.
The CTA dismissed the motion, hence this petition.

ISSUE: Is a formal assessment necessary in the filing of a criminal complaint?

S.M.O

HELD: No. Section 222 of the NIRC states that an assessment is not necessary before a criminal
charge can be filed. This is the general rule. Private respondents failed to show that they are
entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie
showing of failure to file a required return. This fact need not be proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an
assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The
taxpayer is then given a chance to submit position papers and documents to prove that the
assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or
her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has
been made against him or her. In contrast, the criminal charge need not go through all these. The
criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal
case had been filed against him, not that the commissioner has issued an assessment. It must be
stressed that a criminal complaint is instituted not to demand payment, but to penalize the
taxpayer for violation of the Tax Code.

8. Exemption from Taxation

9. Equitable Recoupment
10. Prohibition on Compensation and Set-Off
11. Compromise and Tax Amnesty
12. Taxpayer’s Suit, Requisites